Author Topic: Question about 401k options  (Read 3039 times)

MyCircus, MyMonkeys

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Question about 401k options
« on: February 05, 2016, 07:45:20 AM »
Hello, I'm trying to review my husband's 401k choices, and would like some advice.  I use the TSP, so it's much easier overall!  Here are his choices (and associated fees) with the bolded option his current allocation:
US Govt Securities fund- .11%
Fixed Interest fund- .21%
intermediate bond fund- .21%
Balanced fund-.42%
Russell 3000 Index fund-.06%
Diversified equity fund-.35%
International equity fund-.59%
US small cap fund-.60%
Johnson & Johnson common stock fund-.05%
Johnson & Johnson stock contributions fund-no fee (J&J company stock purchase)

He is 37, I am the primary earner, and we both expect to work for probably 20 years (newbie here). We are only doing the minimum (6%) to get the company match.

Any suggestions?  Thanks!

johnny847

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Re: Question about 401k options
« Reply #1 on: February 05, 2016, 08:45:31 AM »
I'd suggest he put all his money in the Russell 3000 fund. That's a total US market index and is very cheap, on par with Vanguard's admiral shares of their total market fund.

And then I'd buy however much in bonds you want in your TSP.


If you don't mind me asking, how come you're only contributing 6%? Are you paying off high interest rate debts?


EDIT: Typo
« Last Edit: February 05, 2016, 02:12:27 PM by johnny847 »

El Marinero

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Re: Question about 401k options
« Reply #2 on: February 05, 2016, 01:41:50 PM »
I'd suggest he put all his money in the Russell 3000 fund. That's a total US market index and is very cheap, on part with Vanguard's admiral shares of their total market fund.

And then I'd buy however much in bonds you want in your TSP.


I was just going to say the same thing.  No point in paying the higher fees for the Balanced Fund.

MustacheAndaHalf

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Re: Question about 401k options
« Reply #3 on: February 05, 2016, 02:21:42 PM »
...
intermediate bond fund- .21%
Balanced fund-.42%
Russell 3000 Index fund-.06%
...
Two reasons to avoid the balanced fund: you can make your own, cheaper;  and you might not agree with a 50% bond allocation common in many balanced funds.  My guess is you should be closer to 20% bonds (or 0% if you're very aggressive, and 30% if you're very conservative about stock losses).

But here's how to make your own, cheaper:
Russell 3000 Index fund: this is a total market fund.  It has a low 0.06% expense, and holds every stock in proportion to it's market weight (or "market cap").  It has very low turnover, too - passive funds don't waste money guessing.
Intermediate bond fund: that's a fund with roughly 5 year bonds (some less, some more, but near 5 years).  That tends to give a good balance between time and other factors.  The expense ratio of 0.11% is very good, as well.

Without more detail on the "fixed income fund", I'd favor the intermediate bond fund.  But at a 0.11% expense ratio, it's not a bad choice - just lacks information.  So overall, pick a percent stocks... try the total stock fund.  Put the remaining percentage in the intermediate bond fund.  Your expense ratio will drop from 0.42% to less than 0.08%, saving you money each year.

Jeremy E.

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Re: Question about 401k options
« Reply #4 on: February 05, 2016, 03:00:12 PM »
I agree with going all in on Russel 3000 index fund

simpleFIblog

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Re: Question about 401k options
« Reply #5 on: February 05, 2016, 04:15:40 PM »
So overall, pick a percent stocks... try the total stock fund.  Put the remaining percentage in the intermediate bond fund.  Your expense ratio will drop from 0.42% to less than 0.08%, saving you money each year.

This is good advice, and essentially what I was going to suggest.

In three simple steps:
1. Define your asset allocation in a ratio of stocks to bonds (e.g., 80:20)
2. Allocate your desired stock percent into Russell 3000 Index
3. Allocate the remainder into the bond fund of your choice. (US Govt Securities appears to be best choice)

Like others, I'd also go all in on the Russell 3000, but I'm young and very risk tolerant. You and your husband can choose an allocation to meet your own goals/risk tolerance.

MyCircus, MyMonkeys

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Re: Question about 401k options
« Reply #6 on: April 19, 2016, 03:08:57 PM »
Thanks for all the responses! Sorry for my delay; I just noticed the "new reply to your posts" button.

Yes, we are only doing 6% for his 401k due to high interest debt we are currently paying off.

forummm

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Re: Question about 401k options
« Reply #7 on: April 20, 2016, 09:49:39 AM »
I'd suggest he put all his money in the Russell 3000 fund. That's a total US market index and is very cheap, on part with Vanguard's admiral shares of their total market fund.

And then I'd buy however much in bonds you want in your TSP.


I was just going to say the same thing.  No point in paying the higher fees for the Balanced Fund.
Me too. If you want bonds, the TSP bond funds are super cheap.