Author Topic: Minimizing expense ratios  (Read 1062 times)

Murse

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Minimizing expense ratios
« on: March 28, 2019, 06:16:16 AM »
My retirement plan at work is pretty okay. My plan charges .12% just to have the money in the plan and then also fund fees. My question is around my international and small cap allocations.

I currently have a small cap fund that make up 10% of my retirement account with an ER of .4%
I also have a international fund with a .38% expense ratio, it makes up 20% of my retirement account. The last 70% is a us domestic total stock market index fund at a .045% ER, I would likely leave this since the savings would be so small.

My total retirement account balance is around 65k, I expect it to be about 80k by December of this year.

My question is this- there is an option to transfer up to 90% of my investable assets to a schwab account through my retirement plan. From what I can tell there is a 50$ annual fee for doing this plus the ERís on the funds I use. Thoughts?

Murse

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Re: Minimizing expense ratios
« Reply #1 on: March 28, 2019, 06:29:05 AM »
Also note- there will be an added inconvenience factor. Money will not be put directly into my asset allocation. Instead I would have to make a transfer to schwab, wait a couple business days, then put it in the funds I would like.


maizefolk

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Re: Minimizing expense ratios
« Reply #2 on: March 28, 2019, 06:44:18 AM »
I'd say it may be too early for this to make sense but it is good to keep the option in reserve for the future.

$80,000 * 30% (international + small cap) = $24,000

Let's say you find funds with expense ratios that are about 0.05. So your annual savings at the moment would be $24,000 * 0.35 = $84. And then you'd pay $50 of that in extra fees, so we're talking about $34 in savings for fair bit of work and a risk that new contributions will sit out of the market for a little while since you'll have to remember to invest them each month instead of having them autoinvest, which could eat up all of your annual your savings in a single unlucky day.

Now once you hit 5-10x your current savings, if you're still working and still at the same employer, the work to savings trade off of the Schwab option starts to become more attractive.

Aggie1999

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Re: Minimizing expense ratios
« Reply #3 on: March 28, 2019, 09:26:06 AM »
If I am reading right, forget the transfer idea. Just move all your money in the retirement plan to the US total stock market fund where the low ER is. Then in a taxable brokerage account (Schwab, Fidelity, Vanguard, etc) start building up your international allocation. Also, it's a good idea to have some amount of US total funds in the taxable brokerage account if you plan to retire early. That away you have diversification when you have to start withdrawing from the brokerage account before the traditional retirement age.

Side note: If you are following the 2 - 3 fund approach, you don't need a small cap fund. That would be covered in the total market fund.

Radagast

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Re: Minimizing expense ratios
« Reply #4 on: March 28, 2019, 08:31:17 PM »
My retirement plan at work is pretty okay. My plan charges .12% just to have the money in the plan and then also fund fees. My question is around my international and small cap allocations.

I currently have a small cap fund that make up 10% of my retirement account with an ER of .4%
I also have a international fund with a .38% expense ratio, it makes up 20% of my retirement account. The last 70% is a us domestic total stock market index fund at a .045% ER, I would likely leave this since the savings would be so small.

My total retirement account balance is around 65k, I expect it to be about 80k by December of this year.

My question is this- there is an option to transfer up to 90% of my investable assets to a schwab account through my retirement plan. From what I can tell there is a 50$ annual fee for doing this plus the ERís on the funds I use. Thoughts?
My employer has a "Schwab PCRA" option for their 401k which I take advantage of, which might or might not be similar to yours. Does the .12% also apply to the money transferred to Schwab? Because mine has an 0.5% ER, which does not apply to money held directly in Schwab. If yours is like mine you will already save money by using Schwab. Another nice thing is the $50 does not compound.

Also note- there will be an added inconvenience factor. Money will not be put directly into my asset allocation. Instead I would have to make a transfer to schwab, wait a couple business days, then put it in the funds I would like.
Are you certain about this? My employer Schwab account allows automatic transfers into mutual funds for a variety of periods including weekly, per two weeks, monthly, twice monthly, etc. It was not at all obvious how to set this up though. You should be able to fine tune it so you are only out of the market for a day or three, if yours is like mine.

Murse

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Re: Minimizing expense ratios
« Reply #5 on: March 29, 2019, 06:01:59 AM »
It looks to me like it is .12% and a 50$ Annual fee. Googling, I was able to find a form from 2018 that was .17% with no 50$ annual fee, I think they dropped the ER but added the annual fee for plan year 2019.

As far as am I sure about having to manually move money over- no I am not sure. Reading the fact sheet makes it sound like I do- however perhaps it is just talking about the initial deposit.

Let me ask you another question- does your account balance on your 401k include your PCRA money, or does it only display your account balance as if it were two different accounts?

MustacheAndaHalf

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Re: Minimizing expense ratios
« Reply #6 on: March 29, 2019, 10:58:00 AM »
It also helps to know expense ratios of funds you could get elsewhere.  For example, Vanguard's VXUS charges a 0.09% expense ratio.   So where that does leave you at year end with $80k?

$16k in international at 0.38% ($61/year) versus 0.09% ($14/year) means paying an extra $47/year in fees.  Is it worth $47/year for you to make some changes?  If it isn't, that's your answer before looking at what you can do.

If your income is below IRS limits, you could contribute to an IRA.  You might be able to put some of your investments in the IRA.
« Last Edit: March 30, 2019, 03:05:47 AM by MustacheAndaHalf »

Radagast

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Re: Minimizing expense ratios
« Reply #7 on: March 29, 2019, 10:34:44 PM »
Let me ask you another question- does your account balance on your 401k include your PCRA money, or does it only display your account balance as if it were two different accounts?
Hard to say, since 100% goes directly to Schwab. Both of those? I definitely shows the Schwab money. There is a summary screen but I can't tell which it would be because there is only one number. In another place Schwab appears (I think) as a line item as if it was one of the financial advisor company fund options, with a global summary below that.

Murse

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Re: Minimizing expense ratios
« Reply #8 on: March 31, 2019, 07:19:37 AM »
Let me ask you another question- does your account balance on your 401k include your PCRA money, or does it only display your account balance as if it were two different accounts?
Hard to say, since 100% goes directly to Schwab. Both of those? I definitely shows the Schwab money. There is a summary screen but I can't tell which it would be because there is only one number. In another place Schwab appears (I think) as a line item as if it was one of the financial advisor company fund options, with a global summary below that.

I see. I would only be allowed to put 90% of my 457 assets into my PCRA. Thanks for your insight.