The Money Mustache Community
Learning, Sharing, and Teaching => Investor Alley => Topic started by: IWantAMustache on July 18, 2014, 08:22:45 PM
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I need some advice. I'm 28 years old and just started a new position with a great company and am forced to choose between the funds listed below for my 401k options. The company matches $1.00 for $1.00 for the first 5%, but what would all of you mustachians recommend when there is no index fund option and high expense ratios?
1 Wells Fargo Stable Return 0.73%
2 Dodge & Cox Income (DODIX) 0.43%
3 Vanguard Inflation-Protected Secs Inv(VIPSX) 0.20%
4 Templeton Global Bond Adv (TGBAX) 0.65%
5 Vanguard Wellesley Income Inv (VWINX) 0.25%
6 Oakmark Equity & Income II (OARBX) 1.09%
7 Ivy Asset Strategy A (WASAX) 0.97%
8 BlackRock Equity Dividend Inv A (MDDVX) 0.99%
9 T. Rowe Price Mid-Cap Value (TRMCX) 0.81%
10 American Funds Fundamental Investors R4 (RFNEX) 0.66%
11 T. Rowe Price New America Growth (PRWAX) 0.81%
12 Fidelity Advisor New Insights A (FNIAX) 1.01%
13 Heartland Value Plus (HRVIX) 1.16%
14 Prudential Jennison Mid Cap Growth Z (PEGZX) 0.76%
15 Dodge & Cox International Stock (DODFX) 0.64%
16 American Funds EuroPacific Gr R4 (REREX) 0.85%
17 Prudential Jennison Health Sciences A (PHLAX) 1.23%
18 T. Rowe Price Real Estate (TRREX) 0.78%
19 Prudential Jennison Natural ResourcesZ (PNRZX) 0.89%
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Go for the wellesley.
I have a similar situation at work, except they allow us to do a PCRA - meaning, they pick about 10 funds, but if we really want we can direct 95% of it to a self-directed investment account with access to pretty much every fund. (Though there are some fees for some funds, there are also a large handful of free index funds and ETFs based on them.) Check if you have that option.
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The funds are actually not that bad for actively managed funds. I certainly have seen a lot worse in these plans. Take a look at the hypothetical growth of $10,000 charts on a few of these and I think you will be pleasantly surprised. The two T Rowe Price funds are decent. I have had both American Funds options, they are ok, or at least they were 10 years ago. Wellesley is income oriented, with 60 percent bonds and 40 percent dividend oriented stocks. That's a good balanced fund at an unbeatable price, but it's too much in bonds it to be the only choice for someone your age.. Heartland has run some decent funds, but I've never checked this one out. It's worth a look.
My guess is Prudential is your plan provider. There are probably some account maintenance fees somewhere. Watch out for the annuity sales pitch if the Prudential "advisor" offers to meet with you.
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When you get established in your position, I suggest that you campaign for a better 401k:
http://www.bogleheads.org/wiki/How_to_campaign_for_a_better_401(k)_plan (http://www.bogleheads.org/wiki/How_to_campaign_for_a_better_401(k)_plan)
Until then, don't be afraid to use your 401k. At least get the match, and the options don't look so bad that you'd be better off investing in taxable for amounts over the match.
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I would use Wellesley to fill your desired bond allocation.
So if you want 30 % bonds then 50% allocation to Wellesley.
I would then get 25% each of t Rowe price mid cap value. And 25 % dodge and cox international fund.
Not great. But not terrible either.
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Do the best you can with what they offer to build a diversified portfolio. (That does not mean buying 5-6% of each fund offered!). The time you spend researching this topic will only improve your investing abilities (even if the funds are expensive in terms of fees). Campaign for less expensive funds per the link provided also request life cycle funds while you are at it. When I first started with my company (financial services) almost all the options were funds managed by the company. Someone finally got the message and they now offer a few low cost Vanguard options, as well as some funds managed by other companies (including lifecycle funds). Contribute 5% then fund up all available IRAs housed wherever you want. If you max out the IRAs then you can come back to your 401(K) or just invest on a taxable basis. Someone with more time on their hands could probably do some kind of analysis to determine if it is better to pay high fees in a tax deferred account or just pay the taxes and open a low cost taxable account. A lot will depend on your tax bracket.
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These are quite a bit better than my options, almost nothing under 1% for me, and no company match.
- Are you eligible for an HSA? (Your company has to offer it, or your healthcare plan has to be eligible).
- http://www.madfientist.com/ultimate-retirement-account/
- http://www.madfientist.com/hsa/
- Put 5% in the 401k to get the match. (As for which fund, I am too new to help, sorry! Wellesley looks good, but you will need to choose based on what's in the HSA, IRA)
- Fully fund your IRA and spouse if married
- Finish out 401k (I have run the numbers, and see Mad Fientist, with higher fees, the tax benefits still win.)
- After tax
The last 2 depends on your IRA ladder, what age you will retire (when you wil need $), etc. I am trying to figure this out as I am pretty new .... someone further in the journey can hopefully add some insight.
- http://www.madfientist.com/traditional-ira-vs-roth-ira/
- http://www.madfientist.com/retire-even-earlier/
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The American Funds aren't horrid on the fees and they are decent. I'd stick with those for the equity portion of your portfolio.
Not ideal, but about the best you can do from your choices. (I have ONLY American Funds in my 401k btw)
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Unless you looking to leave the firm. Forget the expense ratio and focus on net return and low volatility