Author Topic: Lessen my 401k Contribution For Contribution into Brokerage Account?  (Read 3308 times)

JonesyOne

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Looking for people's opinion on the idea of lessening the percentage I contribute to my workplace 401k and using that percentage to invest in my brokerage account instead.  Currently I max my 401k out and only invest my annual bonus (roughly 10k) into my brokerage account every year.  My 401k returns the last two years have been pretty dismal (2-3%) but my brokerage account is around 12% returns over same time period.  My investment philosophy for investing in stocks is not anything earth shattering it's simply investing in large cap dividend companies like JNJ, APPL, T, XOM,IBM, VTR and let them sit, collect dividends, and reinvest.  So my idea was to drop my match to 7% from 15% and use that 8% to invest in stocks.  Thoughts?  Also is anyone has large cap dividend stocks they own and love I'm always up for a recommendation! 

ooeei

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Re: Lessen my 401k Contribution For Contribution into Brokerage Account?
« Reply #1 on: October 18, 2016, 08:45:53 AM »
Looking for people's opinion on the idea of lessening the percentage I contribute to my workplace 401k and using that percentage to invest in my brokerage account instead.  Currently I max my 401k out and only invest my annual bonus (roughly 10k) into my brokerage account every year.  My 401k returns the last two years have been pretty dismal (2-3%) but my brokerage account is around 12% returns over same time period.  My investment philosophy for investing in stocks is not anything earth shattering it's simply investing in large cap dividend companies like JNJ, APPL, T, XOM,IBM, VTR and let them sit, collect dividends, and reinvest.  So my idea was to drop my match to 7% from 15% and use that 8% to invest in stocks.  Thoughts?  Also is anyone has large cap dividend stocks they own and love I'm always up for a recommendation!

That really depends on what's available in your 401k fund, what they match, and if you think you can continue to outperform it.  It may be that you're invested in a crappy fund, and there's a good one available. 

Personally, I max out my 401k, then my IRA, then go to a brokerage account with what's left.  All 3 accounts hold index funds primarily.

JonesyOne

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Re: Lessen my 401k Contribution For Contribution into Brokerage Account?
« Reply #2 on: October 18, 2016, 08:57:22 AM »
You're totally right, and the fact that I could be invested in crappy 401k funds has crossed my mind.  Fidelity is my companies 401k provider it's just very hard to pick the proper funds.  I recently had Fidelity assist me in a "consulting" capacity to pick funds.  So I'm hoping my new allocation will help me see better growth. 

Personal question for you - why do you max your IRA versus contributing to a brokerage account instead?  Just curious. 

Spitfire

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Re: Lessen my 401k Contribution For Contribution into Brokerage Account?
« Reply #3 on: October 18, 2016, 09:04:07 AM »
Personally, I max out my 401k, then my IRA, then go to a brokerage account with what's left.  All 3 accounts hold index funds primarily.

I do this also. My 401k only has one good option in terms of fees, and it's S&P 500 index, so I have 100% in there.

I then max my Roth IRA (I make too much to get a deduction for tIRA) because it will grow tax-free.

Last is a taxable account because, well, it's taxable.

ooeei

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Re: Lessen my 401k Contribution For Contribution into Brokerage Account?
« Reply #4 on: October 18, 2016, 09:34:33 AM »
You're totally right, and the fact that I could be invested in crappy 401k funds has crossed my mind.  Fidelity is my companies 401k provider it's just very hard to pick the proper funds.  I recently had Fidelity assist me in a "consulting" capacity to pick funds.  So I'm hoping my new allocation will help me see better growth. 

Personal question for you - why do you max your IRA versus contributing to a brokerage account instead?  Just curious.

No capital gains tax in IRA accounts, and if you do traditional IRA (I did about half the limit for mine) you get to defer taxes the same as a 401k.

If possible, I'd recommend going into your fund choices and posting the name, description, and expense ratios of all of your options here.  You may have to open up each prospectus individually to get the expense ratio.  When I used my company's "assistant" thing to get an allocation, it was all over the place and made no sense.  They tend to put you in higher fee funds, and try to make it all sound really complicated.  Chances are there's a low cost index fund you can put it all in and save yourself some money.

BigHaus89

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Re: Lessen my 401k Contribution For Contribution into Brokerage Account?
« Reply #5 on: October 18, 2016, 09:43:41 AM »
I suggest checking out this experiment MadFientist did with taxable vs tax advantaged accounts: http://www.madfientist.com/guinea-pig-experiment/

Others have great suggestions. Reevaluate what 401k funds you are invested in.

mskyle

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Re: Lessen my 401k Contribution For Contribution into Brokerage Account?
« Reply #6 on: October 18, 2016, 09:51:57 AM »
My workplace account is also through Fidelity and we have access to some really nice low-cost index funds, on par with Vanguard's, but they don't necessarily direct you towards them. Look for FUSEX/FUSVX (500 index), FSTVX/FSTMX (total market index), etc. They used to be called "Spartan" funds but they've been renamed in the past year or two. Your exact 401k may vary, but in my experience the good funds are usually there with Fidelity, just not necessarily easy to find.

Nothlit

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Re: Lessen my 401k Contribution For Contribution into Brokerage Account?
« Reply #7 on: October 18, 2016, 12:58:02 PM »
Your 401k allocations are all over the place. It seems like this is probably a result of numbers spit out of some formula your Fidelity advisor used? I prefer a much simpler "three-fund" portfolio strategy: a US stock index fund, an international stock index fund, and a bond index fund. You could use FSTVX, FSPNX, and FSITX, respectively, for those in your 401k. Those are excellent low-fee Fidelity index funds. The exact percentages of each are up to you based on your risk tolerance. I personally do 80% stock, 20% bond - and within the stock allocation I do 70% US and 30% international. Some people might choose different percentages.

I'd also encourage you to read the JLCollins stock series if you haven't already. Lots of good advice in there.

Car Jack

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Re: Lessen my 401k Contribution For Contribution into Brokerage Account?
« Reply #8 on: October 18, 2016, 01:04:54 PM »
Your choices look like some financial advisor (I call them clowns) chose for you.  I can tell because not only are there overlapping funds but there are also high ER funds and your total number is more than 4 (I use 3 but know some people just cannot get away from REITS).

From below, choose what you want for asset allocation.  It's not rocket science and if you don't know where to start, use your age for % of bonds and then 70/30 for US/international equity.  You have great, low ER funds.  You should max your 401k contributions every year.


Here are all funds available to me.  If there is an allocation percentage listed I'm invested in that fund.  If it's zero I'm currently not invested in it but it's available if I chose to.

Symbol   Description   Expense Ratio   % Allocation
BGRIX   BARON GROWTH INST   1.04%   5.15%
DRGTX   ALZGI TECHNOLOGY IS   1.32%   5.15%
FCNKX   FID CONTRAFUND K   0.61%   10.34%
FSEVX   FID EXT MKT IDX PR   0.07%   4.93%

FSITX   FID US BOND IDX PR   0.05%   2.36%  your age as %
FSTVX   FID TOT MKT IDX PR   0.045%   9.81%  US Equity
FXSIX   FID 500 INDEX INST   0.035%   10.52%
GCMUX   GS MID CAP VALUE R6   0.073%   5.02%
GSSUX   GS SM CAP VALUE R6   0.97%   5.17%
HWLIX   H & W LG CAP VALUE I   1.01     14.90%
LCEFX   INVESCO DIVRS DIV R6   0.45%   19.26%
PTTRX   PIM TOTAL RT INST           0.47%   2.55%
VFIJX   VANG GNMA ADM           0.11%   4.83%
FCAKX   FID CAP APPREC K           0.72%   0%
DIERX   DREY INTL EQUITY I   1.03%   0%

FSPNX   FID INTL INDEX INS           0.06%   0%  international equity
FFKHX   FID FREEDOM K 2050   0.67%   0%  (there are many other retirement date funds available)

ooeei

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Re: Lessen my 401k Contribution For Contribution into Brokerage Account?
« Reply #9 on: October 18, 2016, 01:16:12 PM »
FSTVX   FID TOT MKT IDX PR   0.045%   9.81%
FXSIX   FID 500 INDEX INST   0.035%   10.52%
FSPNX   FID INTL INDEX INS           0.06%   0%

Agree with the above posters.  You actually have some great options here, and they are trying to make it way too complicated. 

For example, imagine they give you 10 mutual funds, each for a different sector of the economy (energy, tech, healtcare, etc).  Each of these specialized funds is designed so you can get the benefits of that asset class without the risks of others, and probably costs more than a broad index fund that covers all of them.  The problem is when you have all 10, you basically have a total market index fund, which is easier and cheaper than 10 targeted funds.  This problem is made worse because plenty of the funds they have selected in your case likely have overlap, so there's all sorts of wonky stuff going on.  These funds were not designed to be a tiny part of a batch of other mutual funds.  The 3 I left above are the only ones I'd keep. 

If it was me (and it basically is, I have similar funds available), I'd be in 70% FXSIX, 20% FSPNX, and 10% FSTVX.  Then again, I'm 27 years old, and willing to accept more volatility than some folks.  I highly recommend the jlcollinsnh stock series someone linked above as well.  Just read 1-2 articles a day.
« Last Edit: October 18, 2016, 01:20:09 PM by ooeei »

JonesyOne

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Re: Lessen my 401k Contribution For Contribution into Brokerage Account?
« Reply #10 on: October 18, 2016, 01:21:59 PM »
Great input!  Thank you!

MDM

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Re: Lessen my 401k Contribution For Contribution into Brokerage Account?
« Reply #11 on: October 18, 2016, 06:34:48 PM »
See also the 'Investment Order' tab in the case study spreadsheet for reasons behind making taxable investing last in priority: in short, because you're likely to pay more taxes for a taxable account. ;)