Author Topic: Moving from a Target Fund to a 2-3 Fund  (Read 1062 times)

ForeverLearning

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Moving from a Target Fund to a 2-3 Fund
« on: May 20, 2017, 03:33:29 PM »
We're still are relatively new to this site & investing. Around 6 months ago, we went with a Target Fund account with my husband's 401k because it just seemed easier to understand.
We just received a letter a couple of weeks ago from Fidelity that they will be adding an additional management fee to our 401k starting June 1, 2017. Of course, now we are contemplating the other fees & realize this can add up really quickly.
So here is what we have currently:

PMP Fund 2055: $47,503.67
Expense Ratio: .41%
NEW Management Fee: .0375% added to each investment fund
Recording Fee: $3.25 (monthly)

OR we could switch funds:

Equity Index Fund: .05% + new fee: .0375%=  .0875%
Bond Index Fund:   .06%  + new fee: .0375%= .0975%
International Index Fund (On the fence): .13% + new fee .0375%= .1675%

*Leaning more to not having international fund due to Total Market exposure.
*We are on the fence with even putting it all in the Equity Index Fund w/o Bond Index Fund due accumulation stage.

Hypothetically, if we go with Equity/Bond Index= .185% instead of the Target Fund= .41%
Is it really worth it to switch funds at this point? It's not a lot of money right now but as the numbers grow could this really affect the outcome?
This would be a easier choice if we had the option of Vanguard Target Fund ER: .16%

I read many people switch to Target Funds (Vanguard) because it's easier but are there any that switch out of Target funds to 2-3 fund to save on the ER?

Thank you for any insight that we are not considering.










SeattleCPA

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Re: Moving from a Target Fund to a 2-3 Fund
« Reply #1 on: May 20, 2017, 04:11:38 PM »
I don't personally use target retirement funds.... (They weren't around when I was doing my accumulation.) But I recommend them to family, clients, friends, etc.

I especially like the cheap ones from Vanguard but even with the higher expense ratio you're only talking a couple of hundred bucks a year. That seems like a reasonable price to pay ... for now. You're getting broader diversification. They're rebalancing for you. It's sort of a gouge. But it's probably not that bad to pay an extra $100 a year for that.

If your husband leaves current employer, you might want to rollover to a Vanguard target fund with a lower ratio.




MustacheAndaHalf

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Re: Moving from a Target Fund to a 2-3 Fund
« Reply #2 on: May 20, 2017, 07:46:41 PM »
Oh no... Fidelity recently lowered some expense ratios below cost.  Now we've found where they are making up the difference!  But that may or may not be causal - it's possible your employer made a change which then Fidelity passed along an increased cost.  You might ask your employer why they didn't explore a 0% higher cost 401(k) plan from Fidelity.