Author Topic: New 401K investment advic, high fees, should i invest?  (Read 2383 times)

Neverstop

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New 401K investment advic, high fees, should i invest?
« on: September 13, 2016, 04:34:49 PM »
Over the past 4 months I have been slowly hacking away at all of my debt in my attempt to be debt free by the end of this year. I am currently doing pretty well and I currently have a net worth of ~(-$1400). Its not great, but considering 4 months ago I was at -($12k) I would say I am doing much better.

I am finally eligible for 401K through my employer and judging from what other co workers have told me plus the fact they only match $750 per year I decided to consult the hive mind. Sadly, they offer no vanguard index funds, but judging from a quick look at the rates of return on some for the past years they don't look that bad, at least to me.

So here is my situation. I am 28, single, no kids and am currently still living at home. I currently have $1900 in saving as an E fund, which is low, but I have been paying away gobs of money toward my debt. I have an HSA currently at $2600 through HSA bank which should near the annual max of $3350 by the end of this month. I am currently not investing in their stocks yet because I am waiting for it to hit $5k so that I can have the monthly fees waived. I made the mistake of enrolling in their investment option too soon and I am being charged $5.50 per month in fees for having a balance under $5k. My plan is to utilize my HSA as a true e fund for medical purposes and investing the balance over $5k. At the moment I am bringing in ~$2500/month after deductions and I still manage to put 10% into my savings account.

My only two debts are two student loans that I have left.
$2985 @ 5.75%
$3100 @ 5.35%

Now, before I get to the 401K should I take upcoming purchases into consideration in regards to my contributions? My 16 year old car that I have had for over 10 years might not last another two years and also I would like to be ready to purchase a house in 2-3 years, nothing fancy, something sub 1k square feet with two rooms.

For my 401K options I have an option of 11 investments and 5 different portfolios ranging from mild to aggressive. I am not really sure what to look for, I need to read up on it, but something with low to no front end, low expense ratio, and moderate performance, right? I also have a traditonal and roth IRA with vanguard that I can contribute to if these options are dirt, but I would at least like to contribute to get the $750 match. Also, I really don't plan on being there longer that 5-10 years so when I go I would like to have a decent amount to roll over into my vanuard IRA when I go.

edit: Front load fees are waived

- Invesco Stable Value Retirement Fund CL4-.88%er
https://www.invesco.com/portal/site/us/dc/collective-trust-funds/product-detail?productId=162&title=invesco-stable-value-trust

- Sentinel Government Securities Fund Class A-  .96% ER
http://www.morningstar.com/funds/xnas/segsx/quote.html

- Pimco Total Return Fund Class A-  .85%ER
http://www.morningstar.com/funds/XNAS/PTTAX/quote.html

- Invesco Equity and Income Fund Class A- .79%ER
http://www.morningstar.com/funds/xnas/aceix/quote.html

- Putnam Equity Income Fund Class A- .96% ER
http://www.morningstar.com/funds/xnas/peyax/quote.html

- Wells Fargo Premier Large Company Growth Fund Class A- 1.12% ER
http://www.morningstar.com/funds/xnas/ekjax/quote.html

- JPMorgan Mid Cap Value Fund Class A- 1.24% ER
http://www.morningstar.com/funds/xnas/jamcx/quote.html

- Hartford Midcap Fund Class R4- 1.16% ER
http://www.morningstar.com/funds/xnas/hfmsx/quote.html

- Thornburg International Value Fund Class R4- 1.24% ER
http://www.morningstar.com/funds/xnas/thvrx/quote.html

- Blackrock Global Smallcap Fund Investor A class- 1.42% ER
http://www.morningstar.com/funds/xnas/mdgcx/quote.html

- Oppenheimer Developing Markets Funs Class A- 1.3% ER
http://www.morningstar.com/funds/xnas/odmax/quote.html




« Last Edit: September 15, 2016, 07:00:36 AM by poorgerm »

Proud Foot

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Re: New 401K investment advice.
« Reply #1 on: September 14, 2016, 09:50:25 AM »
First off, congrats on the progress! Shouldn't take you too much longer to knock out the rest of those student loans.

For the 401k, those options might seem decent looking at the returns but the expeses are high.  My suggestion would be to put enough in to get the match and then look at maxing out your IRA with Vanguard.  I would put the 401k in the Putnam Equity Income fund. The 0.96% ER is a lot higher than at Vanguard but this holds large cap value stocks and has a low turnover (22%) for an active managed fund.

As far as your upcoming purchases to consider, get a good idea of how much you will need to a used car and house downpayment. Can you keep saving the 10% in your savings and use this for your car or downpayment?  Also, what is your debt risk tolerance? With those rates you could look at refinancing the student loans to lower rates and stretch out the length of repayment to help you save for the car and house.

mizzourah2006

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Re: New 401K investment advice.
« Reply #2 on: September 14, 2016, 09:55:55 AM »
Also, you might want to check with your 401k provider, but it looks like along with the high expense ratios the funds have load fees. I  would make sure you don't have to pay those load fees.

Scandium

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Re: New 401K investment advice.
« Reply #3 on: September 14, 2016, 12:28:52 PM »
So here is my situation. I am 28, single, no kids and am currently still living at home.

Does this mean you live with your parents? I also live at my home.. :D

Looks like a nasty selection of funds. Does the 401k signup package or websiste list the fees? Often they are different than morningstar reports. Mine has an index fund M* give as 0.30% ER, but our provide charge 0.88%!!

I second getting the match then maxing an IRA as the first step. Then if you can go back and fill up the 401k limit.

Do you need to keep the $5k in  the HSA for medical? What's the deductible on your plan? Do you have health costs? If you're already paying for it I would just invest all of that now. If you want you can fill up the $5k in cash later. As long as you're comfortable with a more volatile health fund for a while that is. You're young so you shouldn't need it. I think my total health costs from 18-32 years old has been <$1000

Neverstop

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Re: New 401K investment advice.
« Reply #4 on: September 14, 2016, 07:12:29 PM »
First off, congrats on the progress! Shouldn't take you too much longer to knock out the rest of those student loans.

For the 401k, those options might seem decent looking at the returns but the expeses are high.  My suggestion would be to put enough in to get the match and then look at maxing out your IRA with Vanguard.  I would put the 401k in the Putnam Equity Income fund. The 0.96% ER is a lot higher than at Vanguard but this holds large cap value stocks and has a low turnover (22%) for an active managed fund.

As far as your upcoming purchases to consider, get a good idea of how much you will need to a used car and house downpayment. Can you keep saving the 10% in your savings and use this for your car or downpayment?  Also, what is your debt risk tolerance? With those rates you could look at refinancing the student loans to lower rates and stretch out the length of repayment to help you save for the car and house.

I was thinking the same thing, prioritize HSA> IRA> 401K. One of my concerns is with the coming year. Next gear I will gross around $60k, compared to ~$45k this year, so after my HSA and IRA Contributions I must put around $5k into my 401k to just barely drop me down into the 15% tax braxket. Ideally I would like to max out my 401k also.

I can continue to save 10% of my net income and can definitely use it towards a vehicle purchase, but I'm not sure about the down payment. I was looking to have at least $20k for a down payment in two years and a $10k e fund after vehicle purchase. Ideally I would like a $20k e fund to keep in one of those high APR online checking accounts. That will next me an additional $900 a year.

I would say my risk tolerance is mildly aggressive. I don't know much about the 401k funds but with all of the front load I initially considered them to be risky. I was thinking about just choosing the aggressive portfolio for my 401K and and puting maybe $10k in it next year. Since the 401K would be aggressive I could balance it out a llttle bit with my HSA and IRA by putting those in vanguard index funds which are low expense and to my knowledge less risky.

If I choose to max out my 401K that will cut into my funds for a house down payment. If I don't max it out I lose money by paying more in taxes. I have also thought about maxing it out, going conservative in my portfolio, and then when the time comes for a house withdrawing from my 401k whatever I need to complete my down payment.

Also, you might want to check with your 401k provider, but it looks like along with the high expense ratios the funds have load fees. I  would make sure you don't have to pay those load fees.

I will check but I don't think they waive them.

So here is my situation. I am 28, single, no kids and am currently still living at home.

Does this mean you live with your parents? I also live at my home.. :D

Looks like a nasty selection of funds. Does the 401k signup package or websiste list the fees? Often they are different than morningstar reports. Mine has an index fund M* give as 0.30% ER, but our provide charge 0.88%!!

I second getting the match then maxing an IRA as the first step. Then if you can go back and fill up the 401k limit.

Do you need to keep the $5k in  the HSA for medical? What's the deductible on your plan? Do you have health costs? If you're already paying for it I would just invest all of that now. If you want you can fill up the $5k in cash later. As long as you're comfortable with a more volatile health fund for a while that is. You're young so you shouldn't need it. I think my total health costs from 18-32 years old has been <$1000

Yes, I live with my parents. I updated the OP with the front load and ER for each of the funds. The 401k signup page has links to the funds that show the same exact fees. I'm going to e mail the Merrill Lynch rep just to be sure.

I don't need the $5k in there I just thought it would be better to avoid the yearly total of $66 in fees. My deductible is $2k i believe. I dont have any health costs at the moment. So far this year all I have had has been dental visits and glasses.

johnny847

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Re: New 401K investment advice.
« Reply #5 on: September 14, 2016, 10:00:01 PM »
First off, congrats on the progress! Shouldn't take you too much longer to knock out the rest of those student loans.

For the 401k, those options might seem decent looking at the returns but the expeses are high.  My suggestion would be to put enough in to get the match and then look at maxing out your IRA with Vanguard.  I would put the 401k in the Putnam Equity Income fund. The 0.96% ER is a lot higher than at Vanguard but this holds large cap value stocks and has a low turnover (22%) for an active managed fund.

As far as your upcoming purchases to consider, get a good idea of how much you will need to a used car and house downpayment. Can you keep saving the 10% in your savings and use this for your car or downpayment?  Also, what is your debt risk tolerance? With those rates you could look at refinancing the student loans to lower rates and stretch out the length of repayment to help you save for the car and house.

That Putman fund has a 5.75% front load fee!

MDM

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Re: New 401K investment advice.
« Reply #6 on: September 14, 2016, 10:37:03 PM »
I am finally eligible for 401K through my employer and judging from what other co workers have told me plus the fact they only match $750 per year I decided to consult the hive mind. Sadly, they offer no vanguard index funds, but judging from a quick look at the rates of return on some for the past years they don't look that bad, at least to me.
The whole market has done well for the past few years, so don't let that fool you on any individual fund. 

Those choices are horrible - as bad as many 403b plans.  See How to campaign for a better 401(k) plan - Bogleheads.

Do contribute the $750.  Might as well get $750 from the company that you won't get otherwise.

If you won't be staying more than a few years there, and still have money to invest after your $750 plus HSA plus IRA, see To 401k or not to 401k? That is the question.

Neverstop

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Re: New 401K investment advice.
« Reply #7 on: September 14, 2016, 11:35:03 PM »
I really have no interest in campaigning for a better 401k. I doubt it will do much. It's not a very large company. Technically, these funds should still be returning a profit even after all the front loads and fees correct? I have also been considering maxing out the 401k and keeping it as conservative as possible. Even if no or very little return is generated I get the full tax break and thereby save money.

Neverstop

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Re: New 401K investment advice.
« Reply #8 on: September 15, 2016, 02:25:52 AM »
I think the Hartford mid cap HFMSX may be my next option. It's got no front load, 1.16% front load,band turn over is 29%.   

DavidAnnArbor

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Re: New 401K investment advic, high fees, should i invest?
« Reply #9 on: September 15, 2016, 06:26:24 AM »
Are you sure these are the only mutual funds offered?  I just can't believe the choices you have are so expensive and terrible with front-loading fees.

Neverstop

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Re: New 401K investment advic, high fees, should i invest?
« Reply #10 on: September 15, 2016, 06:54:57 AM »
Yes they are the only funds available, but I just found out from my employers 401k rep that front load fees are waived!

I guess that changes everything.
« Last Edit: September 15, 2016, 07:00:02 AM by poorgerm »

Neverstop

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Re: New 401K investment advic, high fees, should i invest?
« Reply #11 on: September 22, 2016, 04:08:00 PM »
bump up.