Author Topic: Help with 401k investments  (Read 2165 times)

nach0s

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Help with 401k investments
« on: December 10, 2016, 03:07:38 PM »
Hi all, I'm currently 25 and I need help choosing investments for my 401K. Company matches. I chose to put 100% pre-tax contribution into BTC Lifepath 2050 index fund (expense ratio 0.09%, management fee 0.07%). However, there are funds with lower ratio:

Vanguard S&P 500 Index Trust [expense ratio 0.0113%]
Vanguard Russell 1000 Value Index Trust [0.0202%]
Vanguard Russell 1000 Growth Index Trust [0.0216%]
Vanguard Russell 2000 Growth Index Trust [0.0304%]

Vanguard Short-Term Bond Index Fund Institutional Plus Shares [0.04%]

BlackRock Short-Term Investment Account [0.04%]

What funds should I pick and what %? Could I change my current investment or only future investments? Thanks in advance for your help!
« Last Edit: December 10, 2016, 07:39:15 PM by nach0s »

Radagast

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Re: Help with 401k investments
« Reply #1 on: December 10, 2016, 06:16:59 PM »
I think the 2050 index fund looks best. If international stocks are ever the place to be, the 28% allocation to them will matter a lot more than the 0.07% expense ratio difference from the US large company stock funds available to you. The 2050 fund also has an allocation to "extended market" mid and small sized companies, which your other options do not.

Short term bonds are good for short term needs but not long term goals so they are probably not a good choice unless you need the money within five years.

letired

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Re: Help with 401k investments
« Reply #2 on: December 10, 2016, 07:17:13 PM »
I agree, you've made a good choice, especially for someone so young! As a next step, I would check out the JCollins stock series (http://jlcollinsnh.com/stock-series/) and the Boggleheads Getting Started (https://www.bogleheads.org/wiki/Getting_started). It's a fair amount of material to work through, but will help you make decisions about things like 'what is your risk tolerance' and 'what you want to invest in' and 'what kind of asset allocation you want to have'. Once you've made those kinds of decisions, you can revisit your choices.

tl;dr you've made a good choice and none of those expense ratios are bad if you decide to make changes in the future.

nach0s

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Re: Help with 401k investments
« Reply #3 on: December 10, 2016, 07:41:37 PM »
Thanks for the resources!

I forgot to mention the 2050 index fund also has a management fee of 0.07% so total expense ratio is 0.16%. Does this still make the 2050 the best?

Thanks

letired

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Re: Help with 401k investments
« Reply #4 on: December 10, 2016, 07:44:13 PM »
Thanks for the resources!

I forgot to mention the 2050 index fund also has a management fee of 0.07% so total expense ratio is 0.16%. Does this still make the 2050 the best?

Thanks

hmm, I would triple check that! Whenever I've seen management fees, there has also been a line for 'total expense ratio' or Gross expense ratio or something, which includes any management fees. Is that where the 0.16% comes from?
« Last Edit: December 10, 2016, 07:47:20 PM by letired »

nach0s

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Re: Help with 401k investments
« Reply #5 on: December 10, 2016, 09:23:11 PM »
I went to the plan's information, clicked on fees & pricing and it lists:

Exp Ratio (Gross) 0.09%
Management Fee 0.07%

so I assumed 0.16% total. Am I getting it wrong?

Radagast

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Re: Help with 401k investments
« Reply #6 on: December 10, 2016, 09:56:54 PM »
I would guess that the management fee applies regardless of what funds you choose so it doesn't impact the decision. I could be wrong. Either way for that difference I would still prefer to have the international and small stock exposure.

letired

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Re: Help with 401k investments
« Reply #7 on: December 10, 2016, 10:18:04 PM »
I just checked with my Fidelity plan, and when I looked at their definition of 'Management fees' it says

Quote
A fee paid to an investment manager or advisor for its management services. A mutual fund's management fee will be included in the total annual operating expenses and disclosed in the Fee Table of the fund's prospectus.

While their definition of Expense Ratio (Gross) is

Quote
Exp Ratio (Gross)
Expense ratio is a measure of what it costs to operate an investment, expressed as a percentage of its assets, as a dollar amount, or in basis points. These are costs the investor pays through a reduction in the investment's rate of return. For a mutual fund, the gross expense ratio is the total annual fund or class operating expenses directly paid by the fund from the fund's most recent prospectus (before waivers or reimbursements). This ratio also includes Acquired Fund Fees and Expenses, which are expenses indirectly incurred by a fund through its ownership of shares in other investment companies. If the investment option is not a mutual fund, the expense ratio may be calculated using methodologies that differ from those used for mutual funds.

MorningStar puts it more clearly here

Quote
This is the percentage of fund assets paid for interest expense, operating expenses and management fees.

I really thing the management fee is included in the expense ratio, but you should contact your 401k company to check.

RentSeeking

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Re: Help with 401k investments
« Reply #8 on: December 11, 2016, 12:38:48 AM »
I went to the plan's information, clicked on fees & pricing and it lists:

Exp Ratio (Gross) 0.09%
Management Fee 0.07%

so I assumed 0.16% total. Am I getting it wrong?

I would assume this is clarifying that 0.07% is going to the fund manager, while 0.02% are other costs, likely transaction fees for any trading the fund is doing on your behalf. Gross expense ratio should be the total amount you are paying to be invested in that particular vehicle, any other information is just breaking out line items.