The Money Mustache Community
Learning, Sharing, and Teaching => Investor Alley => Topic started by: mac91red on February 02, 2016, 06:53:09 AM
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Good morning.
I was hoping for some feedback on the current state of my 401k as well as a 401k that I am holding from my previous employer.
Current:
Us Large Cap Equity index - fee = .03%. Models the sp 500. Mix % = 80%.
US Bond index - fee = .04%. Mix % = 20%.
These seems like easy picks due to their low fees. The international and small cap mixes all had fees around 1%. My question is would it be wise/good to take advantage of some of the other large cap options?
Options:
US Large Cap Growth (TRBCX) - fee = .72%
US Large Cap Value Equity (DODGX) - fee = .52%
The large cap value performs worse that the s&p so to me it makes sense to avoid it since i have the index option already and why waste investments on a poorer performer with a higher fee. But what about the Growth? When I compare its performance to the s&p it does look favorable but is it worth the .72%
Now - for my previous 401k. I didn't know what I was doing at the time so I was following the online guidance to follow their suggestions. I ended up with an investment mix across 10 different options - index, growth, large, small, medium, international you name it. Looking back this mix in total has about 2% in fees. My currently balance is $37,000 and it is just sitting there. Id like to move it and I've read a lot about vanguard VTSMX. I have also noticed that many people aren't singularly invested in VTSMX which strays from what i've read from mmm. Would it be a good decision to transfer it all to this option? Also, this 401k has been a loser since the start of the year. Making a rollover after the rough start of 2016 isnt costing me anything that I am not thinking of right? There's no point in holding it until it gets back to 0 before rolling it over is there?
Qualifiers: Age: 35, 13 years to FIRE
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So do you want to pay 20X more for funds that likely will under-perform the index funds?
A risk on the rollover is that you sell low, and while the money is in-transit, stocks go up and you wind up buying high. The check can be in the mail for weeks sometimes. Note this can happen no matter what the current price-level is. The best way to mitigate this is to transfer in-kind if at all possible, then change to the new funds at the new brokerage - minimizes your time out of market. A call to Vanguard would let you know if they can facilitate this - some proprietary funds cannot be transferred in-kind. Also, in the grand-scheme of things, $37K isn't that much, so even if you take a substantial hit doing this, you'll be OK long-term.
At the ER's you've got on the index funds, I might consider rolling the old 401K into the current 401K - .03% is better than you can get, even at Vanguard. VTSAX (with $37K, you get admiral shares) will give you a bit of small and mid-cap exposure that you don't have in an S&P 500 fund, so if you want that, .05% is a good ER too. Not really a bad choice either way on this rollover. Then if you want bond exposure, you can do that with the Total Bond Index fund as well. Personally I go 55% VTSAX / 25% Total International / 20% Total Bond, but you should determine your own allocation.
Think about your risk tolerance, then come up with an Investment Policy Statement - https://www.bogleheads.org/wiki/Investment_policy_statement (https://www.bogleheads.org/wiki/Investment_policy_statement). Then when money comes in, you don't have to think about it - just buy whatever your IPS says to buy.
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Appreciate the feedback - I know that I want to be 80/20 for awhile which is why I settled on the funds/mix with my current 401k. I like the idea of moving the old outside of my current employer just to have more flexibility to move the funds later. Not many appealing options where I am at currently.