Author Topic: My 457 allocation - Fidelity 500 vs. VG US Growth Fund Admiral  (Read 341 times)

24forMore

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Hi All Ė Quick investing question and Iíd love to hear your thoughts Ė

Bit of background: I just turned 25, living at home, and I have a decently solid emergency fund for my situation. I started my F.I.R.E. journey this year and maxed out my Roth for 2019 in February. Recently, I maxed out my Roth for 2020 on March 23rd (the current low even though I swear I wasnít timing, and personally Iím hoping the market drops more). I also opened a brokerage account and invested 5k on the 23rd. This is all in VTSAX, other than 3k in VTIAX (International Total Stock) in my Roth.
I have about 5k in my emergency fund. Iím only paying for gas and some groceries here and there for my parents and when Iím staying with the girlfriend. I am still working remotely in a school district.
SoÖ
I opened a 457(b) account a couple of weeks ago and started putting 100% of my paycheck in. My balance in the account is at about $4,000 which leads to my question. I have some great options available.
Currently for the 457(b) allocation I have:
5% Vanguard Developing Markets Admiral (VTMGX)
50% Vanguard US Growth Admiral (VWUAX)
45% Fidelity 500 Index (FXAIX)

My question is whether I should be so heavily in the Vanguard US Growth Admiral. This fund is managed by 5 advisors, has a gross Expense Ratio of .28% with as far as I know no other hidden fees. It invests in 256 large cap stocks, and 5.7% Foreign Holdings. Annualized Returns as of 12/31/19 for 10 years is 14.5%

Part of me likes that itís a Vanguard Growth Fund, but all Iíve read about personally managed funds tells me to just stick it out with the index and go with the Fidelity 500 fund. I plan on holding these stocks for decades.
Iím thinking about changing my future allocations to:
5% Vanguard Developing Markets Admiral (VTMGX)
20% Vanguard US Growth Admiral (VWUAX)
75% Fidelity 500 Index (FXAIX)

Any thoughts? Love to hear your opinions.

Wintergreen78

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Re: My 457 allocation - Fidelity 500 vs. VG US Growth Fund Admiral
« Reply #1 on: April 15, 2020, 07:29:56 PM »
FXIAX expense ratio is 0.015%, so the VWUAX is almost 20x as expensive. The absolute cost isnít very high, but it is enough to be worth considering. The next question is what does that gain you? Do you think it provides meaningful diversification compared to FXIAX?

My guess is that the two track each other pretty closely, in which case I would not see much benefit in paying extra for VWUAX. People have reasonable opinions on whether or not international diversification is necessary.

I think the you are doing the most important things right: starting young, taking advantage of tax-advantaged accounts, thinking about fees and diversification, and focusing on broad index funds. Everything else is details. Personally, Iíd drop the managed fund and use the lower-cost index fund, but you could stick with what youíve got now and probably be fine.

The biggest thing is to not get in the habit of second-guessing yourself every year and changing up your distributions because you read something new about the ďoptimalĒ allocation. I donít have any good links to share, but Iíve definitely seen comparisons floating around that show the exact mix you choose of large cap/small cap/international equities doesnít impact your long term performance all that much compared to your overall stocks/bonds ratio.

MustacheAndaHalf

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Re: My 457 allocation - Fidelity 500 vs. VG US Growth Fund Admiral
« Reply #2 on: April 20, 2020, 12:40:26 AM »
I wonder if their tech weighting is responsible for the improved performance?

VTSAX, 24.4% tech, ten year +10.15% / year
VWUAX - 41.5% tech, ten year +12.70% / year
VITAX - 100% tech, ten year +15.53% / year

Let's say I allocated allocated 43.1% tech using the following:
75% VTSAX (18.1% of overall tech), contributes 10.15 * .75 = +7.6% / year
25% VITAX (25% of overall tech), contributes 15.53 * .25 = +3.9% / year
That 3:1 mix provides a return of +11.5% / year, so there's some other factor at work.

24forMore

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Re: My 457 allocation - Fidelity 500 vs. VG US Growth Fund Admiral
« Reply #3 on: April 20, 2020, 08:52:34 AM »
Thanks for the reply. The tech exposure was the primary reason I was interested in VWUAX. However the fees and more actively managed fund style made me stop, and try to think what I'd like that's simple for the long term. So....

I changed my allocation so it's:
95% FXIAX
5% VTMGX (VG's Developed Market Index Fund)

I understand I need to write out the plan and then follow it for a long term duration (10-40 years). I'm comfortable with this, but there's no small/mid cap USA exposure in my current allocation.

I might do:
90% FXIAX (Fidelity 500)
5% VTMGX (VG's Developed Market Index Fund)
5% FSSNX (Fidelity Small Cap Index)

Or maybe:
88% FXIAX (Fidelity 500)
4% VTMGX (VG's Developed Market Index Fund)
4% FSSNX (Fidelity Small Cap Index)
4% FSMDX (Fidelity Mid Cap Index)

I want a long-term diversified strategy to follow for the next 10 years. I don't know if I'm complicating too much.

Any thoughts?
« Last Edit: April 20, 2020, 09:04:29 AM by 24forMore »

Wintergreen78

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Re: My 457 allocation - Fidelity 500 vs. VG US Growth Fund Admiral
« Reply #4 on: April 20, 2020, 08:59:07 AM »
Nothing wrong with that plan.