Author Topic: Need advice which 401K fund to choose  (Read 789 times)

aimlesstourist

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Need advice which 401K fund to choose
« on: August 05, 2022, 08:52:33 AM »
Hi all! New to investing but have always been lurking around in the MMM blog and these forums. I just got my first job and wanted to ask for advice on which investment to choose for my 401k. Here are the choices I have with my employer:

    Target Date
    • BlackRock LifePath Retirement Index
    • BlackRock LifePath 2025 Index
    • BlackRock LifePath 2030 Index
    • BlackRock LifePath 2035 Index
    • BlackRock LifePath 2040 Index
    • BlackRock LifePath 2045 Index
    • BlackRock LifePath 2050 Index
    • BlackRock LifePath 2055 Index
    • BlackRock LifePath 2060 Index
    • BlackRock LifePath 2065 Index


    Money Market
    • Federated Government Obligations (GOFXX)

    Short-Term Bond
    • Vanguard Short-Term Bond Index (VBIPX)

    Intermediate-Term Bond
    • BlackRock US Debt Index
    • Allspring Core Bond (WTRIX)

    High-Yield Bond
    • Vanguard High-Yield Corporate (VWEAX)
    • World/Foreign Bond
    • MFS Emerging Markets Debt

    Large-Cap Value
    • Dodge & Cox Stock Fund - Class I (DODGX)

    Large-Cap Blend
    • BlackRock Large Cap US Equity Index

    Large-Cap Growth
    • T.Rowe Price Institutional Large Cap Core Growth (TPLGX)

    Mid-Cap Value
    • Diamond Hill Small-Mid Cap (DHMYX)

    Mid-Cap Blend
    • BlackRock Russell 2500 Index

    Small Cap Growth
    • Hood River Small-Cap Growth Fund (HRSIX)

    Real Estate
    • Fidelity Real Estate Income (FRIFX)

    World/Foreign
    • BlackRock MSCI ACWI Ex-US Index
    • MFS Institutional International Equity (MIEIX)

    Emerging Markets
    • T.Rowe Price Emerging Markets Stock (PRZIX)

    Balanced
    • GMO Benchmark-Free Allocation Series (GBMSX)

    Any idea where I should start looking? I thought checking any fees would be a good start, but wanted your thoughts. Thanks!

    Car Jack

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    Re: Need advice which 401K fund to choose
    « Reply #1 on: August 05, 2022, 08:57:10 AM »
    In your case, fees are absolutely everything.  You really need to look at them.  Looks like a high cost, crap 401k, but that's ok.  You probably won't work there forever, so look at this as a way to put money in that will get rolled into an IRA when you leave.  Find the fees.  Put all your money in the lowest cost one.  I had crap 401ks in my last job.  The company changed 401k providers after about 2 years for yet another crap provider.  First company, the lowest cost fund was a mid cap equity fund.  I put 100% in that.  When it changed, believe it or not, the cheapest was a bond fund.  I put 100% there.  I left after 4 years and rolled it over to my Fidelity IRA and was more than happy to put the money into FZROX at an ER of zero.

    ATtiny85

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    Re: Need advice which 401K fund to choose
    « Reply #2 on: August 05, 2022, 09:53:28 AM »
    The BlackRock Lifepath funds in my 401k have an ER of 0.04%. If yours are anything like that, you canít really go wrong at this point picking the one that matches your desired asset allocation.

    aimlesstourist

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    Re: Need advice which 401K fund to choose
    « Reply #3 on: August 09, 2022, 02:26:56 PM »
    Thank you. I guess I'll start off with the lowest fee vehicle then, which is the Vanguard one.

    For some reason, the BlackRock funds we have are up to 0.28% in fees so I will be avoiding that for now.

    achvfi

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    Re: Need advice which 401K fund to choose
    « Reply #4 on: August 09, 2022, 03:06:27 PM »
    Thank you. I guess I'll start off with the lowest fee vehicle then, which is the Vanguard one.

    For some reason, the BlackRock funds we have are up to 0.28% in fees so I will be avoiding that for now.

    Don't just go by the fees. We don't know your age or your investment goals. It would be helpful to know.

    Only vanguard funds I see are short term and other bond funds. If you goal is just to keep money in safe assets with little upside you can put money in vanguard short term bond fund.

    It is possible those blackrock funds may be your best options if your are looking for long term growth with a diversified with relatively low fees compared to other funds you have on there.

    If you are young choose one of the 50-65 funds, if you are older something lower based on risk tolerance. Overtime you can learn and improve your overall portfolio.


    wageslave23

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    Re: Need advice which 401K fund to choose
    « Reply #5 on: August 09, 2022, 03:57:44 PM »
    Thank you. I guess I'll start off with the lowest fee vehicle then, which is the Vanguard one.

    For some reason, the BlackRock funds we have are up to 0.28% in fees so I will be avoiding that for now.

    Don't just go by the fees. We don't know your age or your investment goals. It would be helpful to know.

    Only vanguard funds I see are short term and other bond funds. If you goal is just to keep money in safe assets with little upside you can put money in vanguard short term bond fund.

    It is possible those blackrock funds may be your best options if your are looking for long term growth with a diversified with relatively low fees compared to other funds you have on there.

    If you are young choose one of the 50-65 funds, if you are older something lower based on risk tolerance. Overtime you can learn and improve your overall portfolio.

    Agree. In the short run, fees less than .5% don't really matter.  Look at what your investment objective is and go with the lowest cost within that objective. The next five years of market returns could be something like 12%, -4, 23, 17, -15. Do you see how .5% fee compared to short term treasuries or something else isn't going to really tip the scales for or against different asset classes?

    MustacheAndaHalf

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    Re: Need advice which 401K fund to choose
    « Reply #6 on: August 11, 2022, 10:34:12 AM »
    Thank you. I guess I'll start off with the lowest fee vehicle then, which is the Vanguard one.

    For some reason, the BlackRock funds we have are up to 0.28% in fees so I will be avoiding that for now.
    Picking "Vanguard Short-Term Bond Index (VBIPX)" is similar to holding cash.  You should not put everything there just because it has the lowest expense ratio.

    I suspect you're new to investing, so let me suggest a portfolio and explain why, with a book recommendation as well.
    60% BlackRock Large Cap US Equity Index
    20% BlackRock Russell 2500 Index
    20% international, using the lower expense ratio between (a) and (b)
    (a) BlackRock MSCI ACWI Ex-US Index
    (b) MFS Institutional International Equity (MIEIX)

    The S&P 500 actually has about 80% of the US stock market by weight.  But a fund or ETF with "S&P 500" in its name must pay S&P for the privledge.  I expect almost 100% overlap with a "large cap" fund, perhaps with more stocks in it.  That's why the biggest holding is the largest stocks in the US market.

    That "Russell 2500" fund holds small and mid cap stocks.  It's roughly the right proportion, but it's also nice to keep your allocation simple.  These stocks help give you exposure to the entire US stock market.

    Finally, an international ETF.  Diversification means when the US drops, international might not.  Often they both crash together (like 2022 or 2020), but there are times when international provides diversification.

    Please check out "A Random Walk Down Wall Street" from any library - even outside the United States you'll find a copy.  Any edition of that book will help you understand a bit about portfolios and passive investment - with historical data to back up its claims.

    PDXTabs

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    Re: Need advice which 401K fund to choose
    « Reply #7 on: August 11, 2022, 12:43:51 PM »
    I don't know about your exact age or risk tolerance but I don't think that there is anything wrong with the Blackrock LifePath Index 2065 Fund.

    Sanitary Engineer

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    Re: Need advice which 401K fund to choose
    « Reply #8 on: August 11, 2022, 02:34:13 PM »
    A Random Walk Down Wall Street by Burton Malkeil is great.  My library didn't have it, but they purchased it at my suggestion.

    A Simple Path to Wealth by JL Collins is a great introduction.  I read it through the stock series https://jlcollinsnh.com/stock-series/

    Great Question. Agree that the target date funds are good short term options.

    aimlesstourist

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    Re: Need advice which 401K fund to choose
    « Reply #9 on: August 16, 2022, 12:46:47 PM »
    Yes, I am in my 20s and fairly new to investing, hence coming to this forum and asking this question. Thank you for all your insights.

    @MustacheAndaHalf that's a helpful explanation. I'll check out that book you mentioned.

    ATtiny85

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    Re: Need advice which 401K fund to choose
    « Reply #10 on: August 16, 2022, 06:01:13 PM »
    One nice thing is that you can freely change direction without tax consequences in a 401k. So please keep asking questions and donít worry about making some suboptimal moves right now. Stuff all the money you can in there.

    HOWEVER, you do need to get a plan and then stick to it. More fortunes have been lost by people jumping in an out of investments than any market crash.

    At your age, you are far ahead of where a lot us were. Being aware and asking questions is going to become a very pleasant memory in 30 years when you are living the life you want.

    MustacheAndaHalf

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    Re: Need advice which 401K fund to choose
    « Reply #11 on: August 17, 2022, 05:55:23 AM »
    A Random Walk Down Wall Street by Burton Malkeil is great.  My library didn't have it, but they purchased it at my suggestion.
    I wonder where our our experience differs.  Can you reveal the rough population of your city?

    I came across a copy at a bookstore in Paris, but maybe that's not representative of all of Europe.  I have a general impression the French prefer their own langauge, and figured if they allowed "A Random Walk Down Wall Street" in English, other countries probably had less resistence to it.

    Sanitary Engineer

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    Re: Need advice which 401K fund to choose
    « Reply #12 on: August 17, 2022, 06:30:58 AM »
    A Random Walk Down Wall Street by Burton Malkeil is great.  My library didn't have it, but they purchased it at my suggestion.
    I wonder where our our experience differs.  Can you reveal the rough population of your city?

    I came across a copy at a bookstore in Paris, but maybe that's not representative of all of Europe.  I have a general impression the French prefer their own langauge, and figured if they allowed "A Random Walk Down Wall Street" in English, other countries probably had less resistence to it.

    Town population of about 7,000 and serves as the primary cultural center for a county of 30,000.  I am not sure why they didn't just get it for me through inter-library loan.  It looks like there are about 20 copies available through the state's interlibrary loan.