new 401k options

[undrtow]

Hey guys,

       So I just started a new job and was looking at the 401k options and I was hoping to get a little advice regarding the available options. I subscribe to jlcollins' school of thought in regards to just choosing a total stock market index fund with low fees and investing as much as possible, regardless of market activity. Anyway, the 401k is run through Fidelity, but has some Vanguard funds. The ones I'm looking at are:

       Fidelity 500 Index fund- Institutional Class (FXSIX)     Fees- Exp ratio 0.035% and management fee of 0.022%
              The fund claims to invest at least 80% of funds in assets in the S&P 500. (Whatever that means, but its performance appears to mirror the S&P 500.)

       Vanguard Extended Market Index- Institutional Shares (VIEIX)  Fees- Exp ratio 0.07% with management fee of 0.06%
               This is designed to track the S&P Completion Index and invests in small and mid cap stocks.

       Vanguard Growth Index Fund- Institutional Shares (VIGIX)    Fees- exp ration of 0.07% with management fee of 0.06%
                This fund invests in large cap growth stocks

        Vanguard Small-cap index fund- institutional shares (VSCIX)   Fees- same as above 2 funds
                This fund invests in small cap stocks.

        Vanguard value index fund- admiral shares (VVIAX)    Fees- exp ration 0.08% and management fee of 0.07%
                This fund invests in large cap value stocks.



My question is which fund or combination of funds would you choose, and why? I'm leaning towards investing 100% in the top fund by Fidelity, as it seems to closely match VITSAX (my preferred fund) and has the lowest fees of all the funds. It's also much easier to just invest in one fund than to try and pick multiple and have to worry about rebalancing periodically. Anyway, any advice would be greatly appreciated!

Braeden
 

[NoStacheOhio]

FXSIX AND VIEIX = VTSAX, basically. VIEIX is an S&P completion fund, so combining it with a 500 fund gives you most of the US market.

I forget what the exact ratio is to get to market weighting (Bogleheads may have a thread on this), but mine worked out like this:
64% VIIIX (500 fund)
16% VIEIX (Completion)
20% International

[seattlecyclone]

Buy the S&P 500 and the Extended Market index in a 4:1 ratio and you'll be close enough to approximating a US total stock market fund. Or if you'd prefer to own one US stock fund for simplicity, you can reassure yourself with this five-year comparison of Vanguard's total stock market fund vs. their S&P 500 fund. Hint: they track each other almost identically.

Sure, if a total market fund is an option in your plan you might as well buy it, but S&P 500 is close enough that the complexity of adding a completion index to the mix isn't necessarily worthwhile.

[undrtow]

Thank you both for the advice. I think that for simplicity's sake, I will just invest solely in the 500 fund since it essentially matches the total market performance. Not to mention it's fees are about half of the extended market fund. Hopefully at some point in the future they will add the VTSAX to the 401k options, although I'm sure Fidelity will make sure it's fees are high enough that it makes it less appealing than their 500 fund. Thanks again guys!

[NoStacheOhio]

Thank you both for the advice. I think that for simplicity's sake, I will just invest solely in the 500 fund since it essentially matches the total market performance. Not to mention it's fees are about half of the extended market fund. Hopefully at some point in the future they will add the VTSAX to the 401k options, although I'm sure Fidelity will make sure it's fees are high enough that it makes it less appealing than their 500 fund. Thanks again guys!

My Vanguard funds in my Fidelity 403b don't have any additional fees. It's probably your employer's fault.

[undrtow]

Interesting. I wonder what incentive my employer has for increasing the fees. There must be a kick back somewhere.

I was also wondering what opinions are regarding contributing to a 401k vs paying off student loans. Loan total is 35k at about 6%. Should I just contribute enough to the 401k to get the full match and then pay off loans as quick as possible? With my new job which essentially doubled my income, I was hoping to finally max out my 401k, but that may not be the best option. What do you guys think?

[seattlecyclone]

If you max out the 401(k), how long will it take you to pay off the loans? 6% is kind of a high interest rate, so I understand the drive to pay off the loans quickly. However the thing to consider here is that if you put every spare cent toward the loans and pay them off in a year or three, what happens after that? You'll then be able to max out your 401(k) and have a bunch of extra money left over to invest that will have to go in a taxable account. That's great and all, but you can't go back then to put money toward your 2016 or 2017 401(k) limit at that time. You may find that over the long run, you'll be better off with more money in your 401(k) than you would be if you paid off the loans a bit faster and delayed your retirement savings.

[NoStacheOhio]

Interesting. I wonder what incentive my employer has for increasing the fees. There must be a kick back somewhere.

I was also wondering what opinions are regarding contributing to a 401k vs paying off student loans. Loan total is 35k at about 6%. Should I just contribute enough to the 401k to get the full match and then pay off loans as quick as possible? With my new job which essentially doubled my income, I was hoping to finally max out my 401k, but that may not be the best option. What do you guys think?

It depends on the specific numbers.

My take: If I could knock the loans out in two years or less, I would. Otherwise, I'd split the difference. In any scenario, hitting the employer match is priority #1.

[undrtow]

Thanks for the input. I'm really not sure what the best option would be as I can see benefits to paying heavily to each. I'm thinking of just splitting the difference and contributing roughly equal to both. My main reservation for not just paying off the loans as quick as possible is that my employer will pay 5k a year towards my loans, starting in year 3.