Swapping 401K Investments? - T.Rowe Price

[terrifictim]

Hi everyone,

Just did my first case study post - now trying a post in the investor alley and hoping to tap the wisdom of others.

My company offers T.Rowe Price as the broker for it's 401K service. For the first four years of my career, I put money into the 2055 Retirement Fund (TRRNX) as this was the default option (MER=0.74%). Once I realized I wasn't limited to this option I found the lowest expense ratio they offered which is the T. Rowe Price Equity Index Tr-A (XAT) (0.13%). My current investment amounts are ~$90k in TRRNX and ~$20k in XAT. My question is which of the following options should I be doing?

• Invest all my money in TRRNX going forward
• Invest all my money in XAT going forward
• Invest my money between the two in some ratio going forward
• Take all of my current investments in one account and transfer them to the other account
• Some other option I'm not experienced enough to know

This is a traditional 401k. I do get an employee match ($3k) per year.  I have been focusing on maxing out my 401k (AGI = $90k) as well as a Vanguard IRA.

[TomTX]

1) Figure out your planned asset allocation by percentage (personally, I am 100% LOW-COST total US stock market in the accumulation phase. VTI to be specific.) You may not be limited to the listed funds. My employer also offers a "self directed" option. Not publicized as much, but I can invest in anything on US stock exchanges.

2) Adjust your assets to match your planned asset allocation. Where your assets are now doesn't matter unless there is a significant cost to moving them.

[terrifictim]

TomTX:

From my Personal Capital assessment: 55% US stocks, 22% Intl Stocks, 4% US Bonds, 1.5% Intl Bonds, 5% Cash, 10% Alternatives (i.e. Real Estate)
I'll ask to find out if there are other funds I can invest in. Self-directed would be awesome.

My question was if the 0.74% fee that the retirement fund charges is worth it to give me a more balanced allocation - or if I should just try to do it myself and save the 0.5% markup by going to the index trust.

[TomTX]

With $110k of invested assets, Personal Capital gave you a crap assessment. What's $2k in International Bonds going to do? Nothing except be an annoyance and hassle. Old-school "advisors" do this (or worse) to make investing seem super-complex and to make you dependent on them.

In my opinion, in the accumulation phase, and at $110k a single, broad based mutual fund or ETF is fine. Two is fine. More than that is getting into stupid territory.

I have a higher balance than you, and the vast majority* in VTI (0.04% in expenses),  which is similar to your low cost index.  I would NOT be paying an extra 0.5% for that other fund.

0.5% is a huge drag on your portfolio growth. We talk all the time about "The 4% rule" for how much you can draw on a portfolio safely - guess what? Fund expenses come out of that 4%. So if you're in that expensive fund, your "4%" to live on is actually 3.25%.

*I have a small fraction in VIIIX (0.02% expenses, S&P 500) because it's the best choice for my current employer plan.