Author Topic: Revisiting employer 401(k) fund options  (Read 4932 times)

RumbleKittie

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Revisiting employer 401(k) fund options
« on: January 16, 2014, 12:09:02 PM »
I'm a newbie investor now. However, I was a completely ignorant investor when I first started my job 6 years ago. So when I had to set up my 401(k), I used one of the "GoalManager" options. It was the "Moderate-to-Agressive" model that reallocates to 80% stock and 20% bonds every quarter. Now, that I'm educating myself, I decided to see what I actually had and if there were any better alternatives.

My current "GoalManager" holdings are split up this way:
Fund NameSymbolOwnedExpensesTurnover
Hartford Dividend & Growth R5HDGTX
17%
0.75%
30%
Thornburg International Value R5TIVRX
13%
0.96%
35%
Mainstay Large Cap Growth IMLAIX
13%
0.77%
74%
Oakmark International IOAKIX
12%
0.98%
37%
JHancock Disciplined Value Mid Cap IJVMIX
9%
0.93%
55%
Victory Small Company Opportunity IVSOIX
6%
0.98%
56%
Columbia Acorn ZACRNX
6%
0.78%
16%
Lord Abbett Developing Growth ILADYX
4%
0.76%
202%
MFS Government Securities R4MFGJX
9%
0.62%
?
Delaware Corporate Bond InstDGCIX
11%
0.68%
230%

I'm thinking of changing it to this:
Fund NameSymbolWill OwnExpensesTurnover
Columbia Large Cap Index ZNINDX
40%
0.19%
7%
Columbia Small Cap Index ZNMSCX
20%
0.2%
17%
Blackrock International Index InstlMAIIZ
20%
0.34%
21%
MFS Government Securities R4MFGJX
10%
0.62%
?
Delaware Corporate Bond InstDGCIX
10%
0.68%
230%

I feel a little insecure about this plan of action for a few reasons:
  • It seems like I'm missing Mid Cap coverage.
  • I have no idea what to do with the bonds, so I just left it the same.
  • The new allocation percentages amongst Large Cap, Small Cap, & International are pretty much out of my bum.

The other options available to me are:
Fund NameSymbolExpensesTurnover
T. Rowe Price Dividend GrowthMAGCX
1.02%
73%
BlackRock Long-Horizon Equity InstlMAEGX
0.98%
11%
Columbia Seligman Comms & Info ZCCIZX
1.12%
61%
Munder Veracity Small-Cap Value YVSVIX
1.25%
57%
Oppenheimer Developing Markets YODVYX
1.01%
29%
T. Rowe Price Dividend GrowthPRDGX
0.67%
12%
Oppenheimer International Bond YOIBYX
0.74%
105%
PIMCO Total Return InstlPTTRX
0.46%
380%

So, am I headed in the right direction? Are my insecurities justified? Thanks!

clarkm04

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Re: Revisiting employer 401(k) fund options
« Reply #1 on: January 16, 2014, 12:18:26 PM »
Also read up to ensure none of these have front loads or 12b-1 fees.  Some funds will list low expense ratios to then tack on these other fees.  Kind of a shady shell game.

Good luck!  Your new allocation looks better than the old.  I personally wouldn't worry about not having mid cap, I'm sure others will differ in this opinion, but you look decently diverse.

aj_yooper

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Re: Revisiting employer 401(k) fund options
« Reply #2 on: January 16, 2014, 12:41:12 PM »
Fees.  12b and loads.  Expense ratios.  I suspect your investment fund choices are expensive.  My thought would be to find out what they cost to use and then build the best widget you can with those materials.

RumbleKittie

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Re: Revisiting employer 401(k) fund options
« Reply #3 on: January 16, 2014, 12:45:07 PM »
Thankfully, none of these choices have loads or 12b-1 fees. They just generally have high expense ratios.

Cheddar Stacker

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Re: Revisiting employer 401(k) fund options
« Reply #4 on: January 16, 2014, 01:04:52 PM »
Looks acceptable to me. I keep some money in mid cap, and pay a higher expense ratio to do so, but it's not necessary. I just like to spread out as much as possible so I don't miss out on a big run up in one category. Obviously though, you take the good with the bad and it can just as easily go the other direction.

As long as you have a low cost well diversified portfolio, and it looks like you do in the new allocation, you will be fine. I wouldn't simply look at fees though. It is important to look at historical returns for the funds as well just so you're not picking one that is consistently losing to a similar low cost option.

aj_yooper

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Re: Revisiting employer 401(k) fund options
« Reply #5 on: January 16, 2014, 01:45:10 PM »
Ok on the large cap, small cap, and international mix.  No small cap value, but maybe you could do that in an IRA.

I don't know the bond funds, but they seem expensive (ER).  With the ER and possible NAV changes, your bonds could be losing 3% a year or so.

Could you do bonds in an IRA?

Another Reader

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Re: Revisiting employer 401(k) fund options
« Reply #6 on: January 16, 2014, 02:58:29 PM »
Things like GoalManager and GoalMaker are to be avoided like the plague.  Under the guise of asset allocation, these programs put you into the higher expense ratio, mediocre or worse performing funds.  I have always assumed the funds chosen for these programs are the ones that pay the plan the highest fees, not the ones that are best for you.  You are on the right track with your approach, given the list of choices.  I always picked the best funds offered in the 457 plan (and often had to hold my nose while doing so) and achieved the desired asset allocation by using other accounts.

I do like OAKIX in the actively managed international space.  It's a fund of large cap companies in developed economies.  Take a look at the hypothetical growth of $10,000 chart over 10 years for that one.  There might be a couple of others that are decent, but overall, the indexes are generally better choices in the stinko 401k/403b/457 plans.  If you are lacking mid-cap, I like Fidelity's Spartan mid-cap index and it can go in your IRA.  (Edit: The Spartan mid-cap index is new, but should perform similar to Vanguard.  My experience is with Spartan Extended Market, a mix of small and mid-cap companies.)  Their index fund expenses are the same or even lower in some cases than Vanguard.  If you want some mid-cap in the 401k, the JP Morgan mid-cap value fund is not bad, just a little expensive.

I would not bother with the high expense ratio government securities fund.  DGCIX is a big corporate bond fund.  It appears in a lot of these plans.  You could do worse. 
« Last Edit: January 17, 2014, 08:21:00 PM by Another Reader »

wtjbatman

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Re: Revisiting employer 401(k) fund options
« Reply #7 on: January 17, 2014, 08:10:28 PM »
For the limited choices in your plan (my 401k has even worse options), I think what you decided on is as good as anything. Maybe revisit your bond choices. But definitely looking way better than before!

RumbleKittie

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Re: Revisiting employer 401(k) fund options
« Reply #8 on: January 20, 2014, 07:27:57 AM »
Thanks for the input, everyone! I decided to do 50% Columbia Large Cap Index (NINDX), 25% Columbia Small Cap Index (NMSCX), & 25% Blackrock International Index (MAIIX). I'll compensate for the lack of bonds in my Vanguard account to even out my allocation.

ZiziPB

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Re: Revisiting employer 401(k) fund options
« Reply #9 on: January 26, 2014, 07:58:00 AM »
I have been told that bonds in a taxable account are not a tax efficient choice.  You are better off having a bond fund in your tax sheltered account, and a stock index fund in your taxable account.

MissPeach

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Re: Revisiting employer 401(k) fund options
« Reply #10 on: January 27, 2014, 01:14:16 PM »
I'm jealous. All the funds where I work at in the 2% range in fees. If I didn't have a match and tax deferral I wouldn't bother with a 401K.

RumbleKittie

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Re: Revisiting employer 401(k) fund options
« Reply #11 on: January 29, 2014, 08:35:51 AM »
Ok! So I changed my 401(k) to be holding the three stock index funds I discussed in the previous posts (Columbia Large Cap Index, Columbia Small Cap Index, & Blackrock International Index). I also changed my husband's 401(k) to be 100% Vanguard Institutional Index Fund Institutional Shares (VINIX).

Now we're very stock heavy. We're going for an 80% stock/20% bond allocation.

I'm 29 years old, and he's 37 years old. We're shooting for FIRE in 10-15 years (the wide range is to accommodate for a possible baby hopefully).

I'd like to compensate for the lack of bonds and was thinking of opening a Traditional IRA and stash my bonds there to rebalance. Is that a good strategy?

We currently have a Roth IRA through Vanguard, but we haven't been able to contribute to it in the last couple years. (We're straddling the 28%/33% tax brackets.) We're planning to max out both 401(k)'s this year.

Though my main question is about the Traditional IRA, I'd also welcome commentary on our allocation and any advice on tax strategies. This time of year is always kind of painful. :-/

skyrefuge

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Re: Revisiting employer 401(k) fund options
« Reply #12 on: January 30, 2014, 10:01:38 AM »
Since 2010, there is no longer an income limit for contributing to a Roth IRA. Well, technically there is, but there is no income limit on conversions from Traditional IRAs to Roth IRAs. So you do a "Backdoor Roth IRA" by contributing to a Traditional IRA, and then immediately converting it to a Roth. It's so standard that Vanguard has a page explaining how simple it is.

Your income likely prevents you from making tax-deductible contributions to a Traditional IRA, so you'd only be able to make nondeductible contributions. Assuming you don't already have money in a Traditional IRA, the Roth is a better option (because you'll never be taxed on the gains).

So if you have the cash on hand, you can at least partly make up for the missed opportunity. Between you and your husband, you can stuff $22,000 into your Roth IRAs right now: $5500 for each of you for a 2013 contribution (allowed until April 15 2014), and then $5500 for each of you for a 2014 contribution (allowed until April 15, 2015).

That would hopefully give you enough of a balance in your Roth IRAs to make sure your bond allocation can reach your 20% target?