Author Topic: Help with 457 Plan Investment Options  (Read 4508 times)

GGNoob

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Help with 457 Plan Investment Options
« on: July 24, 2014, 09:40:33 PM »
Through my work, I can invest in Colorado PERA's 457 Plan. I'd like some opinions on the investments.

My initial plan was to go with the 2055 target date fund. The fees on this are lower than the rest (0.26%) and it's a simple 1 fund solution.

But I also wouldn't mind being 100% stocks since I'm only 27 years old. So I was considering something like:

30% US Large Cap (0.35%)
20% US Small/Mid Cap (0.55%)
50% International (0.59%)

I'm open to allocation suggestions on the 3 fund option above. That was just a quick thought. I know that small/mid cap stocks are more volatile than large cap but also have the potential for higher returns. I also prefer to be about 50/50 split between US and international stocks.

Other than the Target Date Funds and the 3 funds mentioned above, there really are no other funds worth looking at as the rest are bond/income funds.

Whats your thoughts on this?

I can eventually do a brokerage account (at TD Ameritrade) if I want to, but there are extra fees and a minimum of $1,000 per transfer to the brokerage account. So at this time that is out of the question since I can only deposit about $225 a month. Within a couple of years I'll be able to max out  my 457 Plan contributions and at that time I may switch to a brokerage account.

Another Reader

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Re: Help with 457 Plan Investment Options
« Reply #1 on: July 24, 2014, 10:16:29 PM »
These are really interesting funds because of how the assets are managed.  The assets are given to three different managers, an active growth manager, an active value manager, and an index manager.   The large cap gets a core active manager as well.  Some of the managing companies are good at the job.  Don't know much about the rest.  I would take this option, except I think putting 50 percent in international would be too high for me.  Most US companies derive a great deal of their business from overseas, so investing in US companies exposes you to other economies, developing and developed.  I don't need the volatility of companies that may not adhere to GAAP and are located in countries that might not be as stable or business friendly as the US.

The target date fund's underlying funds are hard to decipher.  I would be reluctant to go with that option unless I had a more detailed understanding of the component funds.

milesdividendmd

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Re: Help with 457 Plan Investment Options
« Reply #2 on: July 25, 2014, 12:26:33 AM »
I hate target date funds.  But in your case I'd go with the target date fund, simply because its much cheaper.

I like your proposed portfolio's makeup, don't get me wrong, but expenses matter most and the makeup of the target date fund looks very reasonable.

AZ

GGNoob

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Re: Help with 457 Plan Investment Options
« Reply #3 on: July 25, 2014, 07:22:57 AM »
These are really interesting funds because of how the assets are managed.  The assets are given to three different managers, an active growth manager, an active value manager, and an index manager.   The large cap gets a core active manager as well.  Some of the managing companies are good at the job.  Don't know much about the rest.  I would take this option, except I think putting 50 percent in international would be too high for me.  Most US companies derive a great deal of their business from overseas, so investing in US companies exposes you to other economies, developing and developed.  I don't need the volatility of companies that may not adhere to GAAP and are located in countries that might not be as stable or business friendly as the US.

The target date fund's underlying funds are hard to decipher.  I would be reluctant to go with that option unless I had a more detailed understanding of the component funds.

I agree, they are interesting. I was surprised to see that the chart on the page is actually a chart of the managers, and not stocks.

Because the fees are higher on the US Small/Mid and International funds, I could even go a lot higher with US Large Cap to try to lower the overall fees. My 50% allocation to international stocks just came from The Elements of Investing book I read recently. In there, they suggest that your stocks be split equally between a US index fund and an international index fund. But the final allocation is, of course, up to me.

My biggest concern with the Target Date Fund is that it's currently holding 6.6% cash. If I wanted my money in cash, I'd keep it at home or in the bank. It also might get a little too conservative for me over time to the point where I might have to move to a 2060 fund when they offer it. But that should be easy enough to do and I won't have to worry about taxes.

I hate target date funds.  But in your case I'd go with the target date fund, simply because its much cheaper.

I like your proposed portfolio's makeup, don't get me wrong, but expenses matter most and the makeup of the target date fund looks very reasonable.

AZ

It does seem like a pretty reasonable target date fund. But I wonder if the extra fees would be worth going with the 3 funds instead because the returns would most likely be better? There would of course be more risk, but I have time to let the market recover. For all I care, it can crash now so I can buy cheaper stocks. But I'm sure a lot of you would prefer that it didn't!

Connemara

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Re: Help with 457 Plan Investment Options
« Reply #4 on: August 01, 2014, 06:41:03 AM »
I would argue your international allocation is too heavy. John Bogle recommends 20% as the maximum. I have 20% of my 457 in an international index and am comfortable with that.

GGNoob

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Re: Help with 457 Plan Investment Options
« Reply #5 on: August 01, 2014, 07:22:25 AM »
I would argue your international allocation is too heavy. John Bogle recommends 20% as the maximum. I have 20% of my 457 in an international index and am comfortable with that.

Thanks for the tip! I'll read up at Bogleheads.

TomTX

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Re: Help with 457 Plan Investment Options
« Reply #6 on: August 01, 2014, 12:49:35 PM »
I wouldn't even bother with splitting between funds until you have at least $50k. You get too easily distracted, and tempted to trade, et cetera. Try for low expenses, go heavy on US stocks and leave it alone.

milesdividendmd

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Re: Help with 457 Plan Investment Options
« Reply #7 on: August 01, 2014, 01:31:29 PM »
I wouldn't even bother with splitting between funds until you have at least $50k. You get too easily distracted, and tempted to trade, et cetera. Try for low expenses, go heavy on US stocks and leave it alone.

I'm going to  take the other side of this international/US argument.

If you really want to "buy the market" than your original asset allocation of 50/50 is perfect since the US market makes up 50% of the worlds Capital.

In my own portfolio 60% of my stocks are US, and 40% are international. I shade towards the US because the funds tend to be a little bit cheaper.

But if I were to choose an allocation right now based only on valuation, (which I will not-I am a buy-and-hold guy) I would hold at least 60% international funds and 40% domestic. Why? Because the US market is amongst the most expensive in the world right now.

I'm not arguing that you should be 50-50, or 60-40, or 40/60. I'm just arguing that there's nothing wrong with your originally proposed ratio of domestic to international stock funds.


Guizmo

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Re: Help with 457 Plan Investment Options
« Reply #8 on: August 01, 2014, 04:39:55 PM »
I'm 25 with COPERA as well. 100% 2055 fund. Like that old commercial, just set it and forget it!

aj_yooper

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Re: Help with 457 Plan Investment Options
« Reply #9 on: August 01, 2014, 04:56:31 PM »
Congratulations on your start!

I would put your contributions into the Target fund and follow TomTX's idea of set and forget until you have at least $50k.  Then start reading up on investing.  I like Rick Ferri's All About Asset Allocation  and William Bernstein's Four Pillars of Investing.  RF also has a blog.

Chris86

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Re: Help with 457 Plan Investment Options
« Reply #10 on: August 05, 2014, 04:00:25 PM »
Weird. I'm enrolled in PERA too and am also 27.

My allocation breakdown:
US Large Cap Stock: 21%
US Small/Mid Cap: 35%
International 2%
2055 Fund 42%

I need to figure out what to do with international but we're pretty similar.

GGNoob

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Re: Help with 457 Plan Investment Options
« Reply #11 on: August 05, 2014, 04:50:33 PM »
Weird. I'm enrolled in PERA too and am also 27.

My allocation breakdown:
US Large Cap Stock: 21%
US Small/Mid Cap: 35%
International 2%
2055 Fund 42%

I need to figure out what to do with international but we're pretty similar.

They are changing the TRD funds: https://www.copera.org/pera/about/latestnews.htm#glidepath

Looks better than before, so I may just go this route due to the lower fees.

Guizmo

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Re: Help with 457 Plan Investment Options
« Reply #12 on: August 05, 2014, 08:14:54 PM »
Right on! To the COPERA crowd:

If your employer offers the ROTH options, will you all go that route?

GGNoob

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Re: Help with 457 Plan Investment Options
« Reply #13 on: August 05, 2014, 09:43:03 PM »

Right on! To the COPERA crowd:

If your employer offers the ROTH options, will you all go that route?

It would be very tempting as that is a lot of tax-free money in early retirement. But at the same time I'm in the 25% tax bracket so that's a lot of taxes to save now.

Guizmo

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Re: Help with 457 Plan Investment Options
« Reply #14 on: August 07, 2014, 09:40:14 AM »
Yeah. I'm likely in the 15% for the year. If they offer it, I think i'll be tempted to put at least some money in the roth 457. Seems like that would be perfect for early retirement.

Chris86

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Re: Help with 457 Plan Investment Options
« Reply #15 on: August 13, 2014, 03:27:03 PM »

Right on! To the COPERA crowd:

If your employer offers the ROTH options, will you all go that route?

It would be very tempting as that is a lot of tax-free money in early retirement. But at the same time I'm in the 25% tax bracket so that's a lot of taxes to save now.

Thanks for sharing that link about the lifecycle funds! I listen to the town hall meetings, but I had no idea that was happening.

I have a small Roth set up through Fidelity which is solely funded by the 2% back AMEX card. I'm maxing my 457 and trying to plug as much as I can into the 401k on top of that. I like COPERA's 401k fund options and how well they do in regards to returns.

Maybe in the future when income increases :)