Author Topic: Diversification vs. Fees in 401k  (Read 2180 times)


  • 5 O'Clock Shadow
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Diversification vs. Fees in 401k
« on: December 10, 2014, 09:42:32 PM »

First I want to say that I think everyone here is pretty remarkable. I got my finance degree in school and not once in four years did I get one lecture about how to use everything we were taught for our own betterment. This blog has really opened my eyes to the possibilities, but clearly Iím not the first person to appreciate that.

As for my situation, I think Iím doing ok, and am obviously learning a lot on here every day but my question today is really about my 401k allocation. I wouldnít say we have great investment options but theyíre fine, Iím wondering what you all would do given these options.

We have the Target Date funds, mine would be target date 2050 at an ER of .43%.

After that you can more specific:

Equity fund - .22%
Blackrock Equity fund (tracks S&P 500) - .05%
International fund - .42%
Bond fund - .20%
Blackrock US Bond fund - .03%

I guess what Iím wondering is at what point do you guys choose the fees over diversification. It seems like the choice is either the Target Date fund or the two Blackrock funds with no international diversification. The Target Date fund would offer me much more diversification because it includes some funds that track the Russell Small/Mid caps (as opposed to just the S&P 500), as well as some REITS, but would come at a much higher fee.

Do you think the best option would be do have a 90-10 split between the Blackrock funds and then use an IRA to buy an international fund?
Given what Iíve read so far on the forums, as Iím writing this I expect most people to suggest the target date fund because it does offer way more diversification, but if I knew for sure I wouldnít be posting.

Thank you all in advance for sharing your knowledge.


  • Handlebar Stache
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Re: Diversification vs. Fees in 401k
« Reply #1 on: December 10, 2014, 10:26:53 PM »
I would just use the Blackrock funds in your 401k, those are some sweet expense ratios. And many investors have very successful portfolios investing in "only" an S&P 500 fund. If you need international, use an IRA to diversify further.


  • Pencil Stache
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Re: Diversification vs. Fees in 401k
« Reply #2 on: December 10, 2014, 10:30:16 PM »
Agreed with wtjbatman. Get the lowest fee funds in your 401k, and use other accounts for diversification.


  • Senior Mustachian
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Re: Diversification vs. Fees in 401k
« Reply #3 on: December 10, 2014, 10:57:34 PM »
Magrien3, welcome to the forums.

Good question - you are fortunate to have several good choices to choose among.  In fact, I'd say those fees are all low enough that your desired asset allocation should be your only consideration, and don't worry about the fees.

Some caveats to the above: this assumes your 401k dollars represent most of your investment portfolio.  Given the IRS maximums, this is a reasonable expectation compared with IRA accounts.  It may not be correct if you have a large amount of taxable investments - in that case, consider

Back to your 401k: if fees were the only consideration then you would put 100% into the Blackrock US Bond fund.  As nobody is suggesting that, there are implicit assumptions already in play regarding likely asset class investment returns.  The uncertainty in future returns is likely greater than 0.38% (the difference between target date 2050 vs. Blackrock Equity) - thus, decide what asset allocation looks best to you, invest accordingly, and good luck!


  • 5 O'Clock Shadow
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Re: Diversification vs. Fees in 401k
« Reply #4 on: December 11, 2014, 03:36:54 PM »
Thank you all for your advice.


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