The Money Mustache Community
Learning, Sharing, and Teaching => Investor Alley => Topic started by: RH on December 01, 2014, 11:06:26 AM
-
Hi, my company is switching to Vanguard for our 401K (horray!). Now we have to decide the portfolio of funds to offer employees. Here's their generic list. Should we add/remove some to widdle it down from 30 to 10 funds?
Ticker Fund Name Morningstar Category Expense Ratio
VTENX Vanguard Target Retirement 2010 Investor Target Date 2000-2010 0.16%
VTXVX Vanguard Target Retirement 2015 Investor Target Date 2011-2015 0.16%
VTWNX Vanguard Target Retirement 2020 Investor Target Date 2016-2020 0.16%
VTTVX Vanguard Target Retirement 2025 Investor Target Date 2021-2025 0.17%
VTHRX Vanguard Target Retirement 2030 Investor Target Date 2026-2030 0.17%
VTTHX Vanguard Target Retirement 2035 Investor Target Date 2031-2035 0.18%
VFORX Vanguard Target Retirement 2040 Investor Target Date 2036-2040 0.18%
VTIVX Vanguard Target Retirement 2045 Investor Target Date 2041-2045 0.18%
VFIFX Vanguard Target Retirement 2050 Investor Target Date 2046-2050 0.18%
VFFVX Vanguard Target Retirement 2055 Investor Target Date 2051+ 0.18%
VTTSX Vanguard Target Retirement 2060 Investor Target Date 2051+ 0.18%
VTINX Vanguard Target Retirement Income Investor Retirement Income 0.16%
VBINX Vanguard Balanced Index Inv Moderate Allocation 0.24%
VMMXX Vanguard Prime Money Market Investor Money Market 0.16%
VBISX Vanguard Short-Term Bond Index Inv Short-Term Bond 0.20%
VBMFX Vanguard Total Bond Market Index Inv Intermediate-Term Bond 0.20%
VTIBX Vanguard Total Intl Bd Idx Investor World Bond 0.23%
VTSMX Vanguard Total Stock Market Index Inv Large Blend 0.17%
VFINX Vanguard 500 Index Inv Large Blend 0.17%
VIVAX Vanguard Value Index Inv Large Value 0.24%
VIGRX Vanguard Growth Index Inv Large Growth 0.24%
VIMSX Vanguard Mid Cap Index Inv Mid-Cap Blend 0.24%
VMGIX Vanguard Mid-Cap Growth Index Investor Mid-Cap Growth 0.24%
VMVIX Vanguard Mid-Cap Value Index Investor Mid-Cap Value 0.24%
NAESX Vanguard Small Cap Index Inv Small Blend 0.24%
VISGX Vanguard Small Cap Growth Index Investor Small Growth 0.24%
VISVX Vanguard Small Cap Value Index Investor Small Value 0.24%
VGTSX Vanguard Total Intl Stock Index Inv Foreign Large Blend 0.22%
VEIEX Vanguard Emerging Mkts Stock Index Inv Diversified Emerging Mkts 0.33%
VGSIX Vanguard REIT Index Inv Real Estate 0.24%
-
I think more choices are generally better. Is Vanguard offering to give your company Admiral or Institutional pricing on funds if your employees collectively meet the minimums for those lower-cost share classes? If so, that might be a reason to limit the number of available funds. You'll get to those minimums more quickly if the money is spread across fewer funds. Otherwise I can't think of a great reason not to offer all of the funds.
-
I actually disagree - less choices (that fulfill a 3 or 4 fund portfolio) would actually be better in the sense that too many options oftentimes overwhelms or confuses people.
But I think seattlecyclone's point of fewer funds for Admiral or Institutional pricing is more important. How big is your company RH?
-
I'll agree with you that more choices can be confusing to people who don't know anything about investing. That's why a good default is important. Steer people into a target date fund based on their age by default, and make sure they know that this fund should do pretty well for them.
For people who aren't total investing newbies, more choices are nice to have. A three-fund portfolio is great for lots of people. Others might want to put a portion of their stash into REITs or emerging markets or place a higher emphasis on small-cap stocks than the total market fund will provide. Having options for more advanced investors is something I certainly appreciate and I wish my own employer's 401(k) had a slightly larger variety available.
-
We only have 5 employees and Vanguard will give us admiral pricing with no $ minimums. Default of investment will be target fund if employee doesn't specify what they want to invest in. Target fund probably assumes employee wants to retire at age 65....ha!
-
Looks great to me, though I doubt many would mind if you trimmed out the three "growth" options. Personally I would also like a long term bond fund, but with only 5 employees it is quite possible that wouldn't be missed either.
-
RH, can you tell me what the process was like to set up your company with a Vanguard 401k program? I ask as my company has only 6 people. Curious about the costs for them to administrate this for a tiny organization.
Thanks for your input!
-
It looks like the expense ratio's are a little high. Does Vanguard have higher expense ratios for smaller companies? My Vanguard 401k has expense ratios as low as 0.02, 0.05, etc. Target funds are 0.07...
-
Yes, they do have higher expense ratios for smaller companies. If you have the 0.02% expense ratios you probably work for a huge company. The Institutional Plus class of the Vanguard 500 Index fund (VIIIX (https://institutional.vanguard.com/VGApp/iip/site/institutional/investments/productoverview?fundId=0854)) has a 0.02% expense ratio and requires a minimum investment of $200 million in that fund. A six-person company has no chance of meeting this minimum. The next level down (Institutional) has a 0.04% expense ratio and a minimum investment of $5 million. A six-person company can only meet this if all the employees have been maxing out their retirement accounts for the past 25 years and are all heavily invested in the same fund. The OP said their company was offered the Admiral share class for all of their funds, which is slightly higher than the Institutional class but often much lower than the Investor class that is in the list above.