My work Principal 401K

[Briannagan]

Hi guys! Long time reader and first time poster. My work uses Principal Financial Group for our 401K. I just got a notification that they are increasing fees in my 2050 target account to 0.51 % and they are adding some fidelity index fund options with the S&P 500, and a small and mid cap option. Should I keep the target fund? Does anyone have any experience with them? Or should I build my own with the Fidelity index options? They don’t give a ton of options as usual with the work accounts. I can list what’s available if that would help! Thank you

[Financial.Velociraptor]

0.51 isn't bad in the grand scheme of things.  But we can't compare without the ER on the alternatives.  Can you post what is on offer and associated ERs?

[terran]

Agreed, a 0.51% expense ratio certain wouldn't stop me from contributing to a 401(k). But if the Fidelity index funds have the typical expense ratios without anything extra added by the 401(k) custodian I would probably switch to those.

[MustacheAndaHalf]

My work uses Principal Financial Group for our 401K. I just got a notification that they are increasing fees in my 2050 target account to 0.51 %

Legally they have a fiduciary duty to you - so why are they hurting you with increased fees?  You might want to get an explanation for why it's happening.  It doesn't sound like they're acting in your best interest.

That said, while you're a long way from retirement, a lower cost S&P 500 fund would overlap the target date fund ~70%.  The target date fund probably has international equity and bonds (typically 10% when it's a long way to retirement).  So you might switch to the S&P 500 fund.  Do you have outside accounts where you could invest in a total international fund?  Or does their international option have low fees?

[haflander]

My work uses Principal for 401k as well. You may have a different plan or investment options than me, but FWIW...

I went with the large cap S&P 500 index with 100% of my contributions. The ER for that one is .31%, a decent amount lower than .51%. In my plan there are 30-something options. I'm about 90% sure that the large cap index is the lowest fee, but it's also not easy to compare the fund choices. You have to dig into each one to see the ER.

If you're curious about the performance...I only became eligible in February of this year and my first contribution was in mid-March. So far I've contributed 3500 and the balance is at 3663, a gain of 9.88%. This doesn't include any employer matching, as mine does all of the matching at the end of the year. Yes, my work plan really sucks. 10% is pretty good, but the market is doing well right now. For a while there in the spring, the market was doing poorly, so I had less than I had contributed! But, Mustachians don't care about such things. You contribute every paycheck and don't think about the market.

[Briannagan]

Thanks for the reply! Ok so the fee raise is for ADMINISTRATIVE EXPENSES of .51 percent and will apply to each participants account balance. 1/12 of this annual amount will be charged on a monthly basis....

So the Target-Date 2050 fund that I’m currently in the benchmark is the S&P Target Date 2050 Index with an ER of .42 and the breakdown is:

US Stocks: 60.83
Non US Stocks: 29.76
US Bonds 7.35
Non US Bonds .91

The Fidelity 500 Index Funds benchmark is the Russell 1000 Index and is 98.84 US Stocks and .89 non. With Total Inv Exp Net % of .02

The Fidelity Mid Cap Index Fund has the benchmark Russell Midcap Index w/ 98.70 US Stocks and a Total Inv Exp Net % of .03

The Fidelity Small Cap Index Fund has the Russell 2000 Index benchmark and is 98.59 US Stocks and .03% ER

(These all take effect 08/01/19)

If I did do a mix how would I construct? There are some international options as well that I’ll post below here as well. I do have a company match in our company stock so I have to put a % of that if I’m going to select my own and put down percentages up to 100.


Foreign Large Growth
Investor Manager Capital Research
Benchmark: MSCI ACWI Ex USA Growth Index
88.14 non US Stocks
.49 ER

Foreign Large Growth
Investor Manager Invesco
92.99 non US Stocks
.90 ER

Foreign Small/Mid Blend
Inv Manager principal global investors
Benchmark: MSCI World Ex USA Small Cap Index

98.61 non US Stocks
.76 ER

World Large Stock
Inv Manager Capital research
MSCI ACWI Large Cap NR Index
51.11 us Stocks
42.91 non us stocks

Principal Stable Value Z fund
Bloomberg Barclays 1-3 yr govt index
87.91 US bonds
.41 ER

There’s a few other bonds and a fixed income for principal real estate inv


THANKS GUYS!

[seattlecyclone]

I'd definitely go for those .02-.03% funds rather than your target date fund.

To approximate the US total market, you can go with an 80/10/10 allocation into the 500/Mid-cap/Small-cap funds. I don't see a similarly low-cost option for bonds or international stocks within your 401(k), so you may wish to buy those in your IRA instead.

[Briannagan]

I'd definitely go for those .02-.03% funds rather than your target date fund.

To approximate the US total market, you can go with an 80/10/10 allocation into the 500/Mid-cap/Small-cap funds. I don't see a similarly low-cost option for bonds or international stocks within your 401(k), so you may wish to buy those in your IRA instead.

Much appreciated! Thanks for the breakdown, I’m on it!

[Briannagan]

My work uses Principal for 401k as well. You may have a different plan or investment options than me, but FWIW...

I went with the large cap S&P 500 index with 100% of my contributions. The ER for that one is .31%, a decent amount lower than .51%. In my plan there are 30-something options. I'm about 90% sure that the large cap index is the lowest fee, but it's also not easy to compare the fund choices. You have to dig into each one to see the ER.

If you're curious about the performance...I only became eligible in February of this year and my first contribution was in mid-March. So far I've contributed 3500 and the balance is at 3663, a gain of 9.88%. This doesn't include any employer matching, as mine does all of the matching at the end of the year. Yes, my work plan really sucks. 10% is pretty good, but the market is doing well right now. For a while there in the spring, the market was doing poorly, so I had less than I had contributed! But, Mustachians don't care about such things. You contribute every paycheck and don't think about the market.

Thanks for the input! I definitely contribute every paycheck regardless and hold strong! I’m going to dive into the S&P 500 Index with the lower funds

[Briannagan]

My work uses Principal Financial Group for our 401K. I just got a notification that they are increasing fees in my 2050 target account to 0.51 %

Legally they have a fiduciary duty to you - so why are they hurting you with increased fees?  You might want to get an explanation for why it's happening.  It doesn't sound like they're acting in your best interest.

That said, while you're a long way from retirement, a lower cost S&P 500 fund would overlap the target date fund ~70%.  The target date fund probably has international equity and bonds (typically 10% when it's a long way to retirement).  So you might switch to the S&P 500 fund.  Do you have outside accounts where you could invest in a total international fund?  Or does their international option have low fees?

The .51 fee is a new administrative fee I guess. The target fund right now is .42 ER and has about 8 % bonds. I am setting up my Roth with Vanguard this week and was looking at a life strategy fund!! Could  that make sense here?

[terran]

Life strategy funds are similar to target date funds in that they're a mix of US/international/bonds. Since you'll have your 401(k) heavy in US funds to optimize expenses you'll want to put your Roth in international/bonds to get to your desired asset allocation.

Here's some more info on approximating the total US market with component funds: https://www.bogleheads.org/wiki/Approximating_total_stock_market.

[Briannagan]

Life strategy funds are similar to target date funds in that they're a mix of US/international/bonds. Since you'll have your 401(k) heavy in US funds to optimize expenses you'll want to put your Roth in international/bonds to get to your desired asset allocation.

Here's some more info on approximating the total US market with component funds: https://www.bogleheads.org/wiki/Approximating_total_stock_market.

Thank you!

[Roots&Wings]

You are super lucky, and will save big time switching to the low fee Fidelity funds.

My Principal 401k Target Date Retirement fund expense ratio is 1.28%, and I switched to the lowest fee index fund available in my plan with expense ratio of 0.54%. 

That alone will save over $15,000 in fees over the next 8 working years!  According to this calculator: http://401kfee.com/how-much-are-high-fees-costing-you/

[Briannagan]

You are super lucky, and will save big time switching to the low fee Fidelity funds.

My Principal 401k Target Date Retirement fund expense ratio is 1.28%, and I switched to the lowest fee index fund available in my plan with expense ratio of 0.54%. 

That alone will save over $15,000 in fees over the next 8 working years!  According to this calculator: http://401kfee.com/how-much-are-high-fees-costing-you/

Wow! That is high. At least you were able to get down to the .5 rang out of that 1.28!!! What Index fund did you switch into? Did you allocate everything into one?

[Roots&Wings]

I went with large cap 500 index fund, and yes, all at once, as there were no transaction issues for transferring funds within the 401k. One thing that's nice with Principal is it's fairly easy to change investments.

[Briannagan]

I went with large cap 500 index fund, and yes, all at once, as there were no transaction issues for transferring funds within the 401k. One thing that's nice with Principal is it's fairly easy to change investments.

Awesome thanks so much! Should I include any of the Fidelity small or Mid Cap?

[Roots&Wings]

If you'd like to mimic the overall market composition, then yes, have small, mid, and large cap holdings.

[Briannagan]

If you'd like to mimic the overall market composition, then yes, have small, mid, and large cap holdings.

👍👍 thank you

[seattlecyclone]

If you'd like to mimic the overall market composition, then yes, have small, mid, and large cap holdings.

👍👍 thank you

The counterargument is that the large-cap makes up such a huge percentage of the total index by market cap. If you superimpose the graphs of the 500 fund over the total market, the trajectory of the two funds is basically identical. I tend to prefer the total market (VTSAX) when it's available, but it's totally reasonable to just buy the 500 and call it good for your US stock allocation if you don't want to mess around with rebalancing the two other funds.

[Nodip]

My work uses Principal Financial Group for our 401K. I just got a notification that they are increasing fees in my 2050 target account to 0.51 %

Legally they have a fiduciary duty to you - so why are they hurting you with increased fees?  You might want to get an explanation for why it's happening.  It doesn't sound like they're acting in your best interest.

That said, while you're a long way from retirement, a lower cost S&P 500 fund would overlap the target date fund ~70%.  The target date fund probably has international equity and bonds (typically 10% when it's a long way to retirement).  So you might switch to the S&P 500 fund.  Do you have outside accounts where you could invest in a total international fund?  Or does their international option have low fees?

@MustacheAndaHalf   -- I was also in the same situation and moved from Target date fund (CIT) to S&P 500 to reduce fees in 401k and thinking about the outside accounts to invest in international fund. Is there a way to check all the index funds I invest in 401k,HSA,Vanguard etc to see how much percentage is in US and Non US both stocks and bonds ?? Tried portfolio visualizer but was not able to figure out where to look. TIA

[Roots&Wings]

^ Vanguard's portfolio watch will do this if you add your outside investments (it's on the asset mix tab).

[Nodip]

^ Vanguard's portfolio watch will do this if you add your outside investments (it's on the asset mix tab).

I  tried the asset mix feature in vanguard by adding the outside investments and it shows stocks to bond ratio.Is there a way to see the US vs ex-US allocation ?

[Steeze]

^ Vanguard's portfolio watch will do this if you add your outside investments (it's on the asset mix tab).

I  tried the asset mix feature in vanguard by adding the outside investments and it shows stocks to bond ratio.Is there a way to see the US vs ex-US allocation ?

https://www.tdameritrade.com/education/tools-and-calculators/morningstar-instant-xray.page

[Roots&Wings]

^ Vanguard's portfolio watch will do this if you add your outside investments (it's on the asset mix tab).

I  tried the asset mix feature in vanguard by adding the outside investments and it shows stocks to bond ratio.Is there a way to see the US vs ex-US allocation ?

It's kind of hiding at the bottom of asset mix, there's a red link for "Go to Portfolio Watch" (screen shot attached). It's basically doing the Morningstar Xray like the link above, and you can also model changes with the portfolio tester.

[Nodip]

^ Vanguard's portfolio watch will do this if you add your outside investments (it's on the asset mix tab).

I  tried the asset mix feature in vanguard by adding the outside investments and it shows stocks to bond ratio.Is there a way to see the US vs ex-US allocation ?

It's kind of hiding at the bottom of asset mix, there's a red link for "Go to Portfolio Watch" (screen shot attached). It's basically doing the Morningstar Xray like the link above, and you can also model changes with the portfolio tester.

^ Vanguard's portfolio watch will do this if you add your outside investments (it's on the asset mix tab).

I  tried the asset mix feature in vanguard by adding the outside investments and it shows stocks to bond ratio.Is there a way to see the US vs ex-US allocation ?

https://www.tdameritrade.com/education/tools-and-calculators/morningstar-instant-xray.page

Thanks

[MustacheAndaHalf]

...  Do you have outside accounts where you could invest in a total international fund?  Or does their international option have low fees?

@MustacheAndaHalf   -- I was also in the same situation and moved from Target date fund (CIT) to S&P 500 to reduce fees in 401k and thinking about the outside accounts to invest in international fund. Is there a way to check all the index funds I invest in 401k,HSA,Vanguard etc to see how much percentage is in US and Non US both stocks and bonds ?? Tried portfolio visualizer but was not able to figure out where to look. TIA

@Nodip - I tend to use morningstar.com to check the contents of an ETF or mutual fund. On the portfolio page, they show small/mid/large cap and international vs U.S.  For ETFs, you could also use etfdb.com, but I don't trust their data as much.

[TomTX]

I went with large cap 500 index fund, and yes, all at once, as there were no transaction issues for transferring funds within the 401k. One thing that's nice with Principal is it's fairly easy to change investments.

Awesome thanks so much! Should I include any of the Fidelity small or Mid Cap?

Unless you have over $50k (bare minimum!) - just dump it all in the S&P 500 fund and forget about it for awhile. Keep it simple, stay the course.

Learn about asset allocation and come up with a plan you can stick to. No rush.

[Briannagan]

I went with large cap 500 index fund, and yes, all at once, as there were no transaction issues for transferring funds within the 401k. One thing that's nice with Principal is it's fairly easy to change investments.

Awesome thanks so much! Should I include any of the Fidelity small or Mid Cap?

Unless you have over $50k (bare minimum!) - just dump it all in the S&P 500 fund and forget about it for awhile. Keep it simple, stay the course.

Learn about asset allocation and come up with a plan you can stick to. No rush.

Appreciate it man. Yeah, I’ve got about 21K in it including the company stock match I get. I’ll just hammer the S/P! The new low cost ER Fidelity plan starts on 8/1

[Briannagan]

If you'd like to mimic the overall market composition, then yes, have small, mid, and large cap holdings.

👍👍 thank you

The counterargument is that the large-cap makes up such a huge percentage of the total index by market cap. If you superimpose the graphs of the 500 fund over the total market, the trajectory of the two funds is basically identical. I tend to prefer the total market (VTSAX) when it's available, but it's totally reasonable to just buy the 500 and call it good for your US stock allocation if you don't want to mess around with rebalancing the two other funds.

Unfortunately my work plan doesn’t have a TM, but will be adding the super low cost ER Fidelity S/P 500. Small and Mid Cap. I’m still super new to the whole rebalancing so thinking I’ll just go with the 500 esp if they’re pretty close like you were saying (that link didn’t work for me)

[TomTX]

Good for you!

All the "ideal asset allocation and rebalancing" is really an advanced topic - I think it's too offputting to people new to investing and contributes to "analysis paralysis" where you spend so much time thinking about what to do, you don't actually do it in a timely manner.

The far bigger contributors to success are:

1) Consistently invest as much as you can. No trying to time the market.

2) Invest mostly in a broad based stock index fund for long-term growth. Accept you will see a 50% crash someday and see it as a buying opportunity for your next paycheck.

Somewhat big contributors:

3) Be tax efficient (ie, use 401k/IRA)

4) Be cost efficient (low expenses where possible)

[Briannagan]

Good for you!

All the "ideal asset allocation and rebalancing" is really an advanced topic - I think it's too offputting to people new to investing and contributes to "analysis paralysis" where you spend so much time thinking about what to do, you don't actually do it in a timely manner.

The far bigger contributors to success are:

1) Consistently invest as much as you can. No trying to time the market.

2) Invest mostly in a broad based stock index fund for long-term growth. Accept you will see a 50% crash someday and see it as a buying opportunity for your next paycheck.

Somewhat big contributors:

3) Be tax efficient (ie, use 401k/IRA)

4) Be cost efficient (low expenses where possible)

Wise words. I’m in it for the long haul for sure and will hammer these new low cost options in my 401k  while trying to get a good total market allocation!!! ✌🏻