401K Options

[Person3]

I am very new to learning about the stock market, and neither my husband nor I know very much about it. He has a 401k at work through Fidelity, and right now 100% of it is going into JFFAX - JPMorgan SmartRetirement® 2055 Fund Class A. This was the default that he was given. I looked into it a little on Fidelity's website, and it seems like it is a pretty diversified fund, but it has only existed since January 2012 - I don't know if that should concern us or not.

He is given 25 different options to invest in, and I think his money can be split between a few. I copied the list and will paste it below; hopefully it will be legible.

We're really looking for advice on if the JFFAX that his money is in now is good, and if we should just leave it, or if we should move it or split it, and if so, which of the 25 options are any good. Also, should we do all stocks or should we have some bonds too?

We are both in our late twenties, and probably won't be retiring until at least 55 or so, if that helps. Thanks in advance!

Here is the list of 25 options he has:

Name/Inception Date    Asset Class    Category    1 Year    3 Year    5 Year    10 Year/LOF*    Returns As Of    Bench- mark
FA NEW INSIGHTS A (FNIAX) 07/31/2003    Stock Investments    Large Cap    16.24%    7.89%    11.49%    7.95%    03/31/2017    Show
MFS VALUE R3 (MEIHX) 01/02/1996    Stock Investments    Large Cap    16.70%    8.81%    12.80%    6.88%    03/31/2017    Show
PIF LGCP S&P 500 R3 (PLFMX) 12/06/2000    Stock Investments    Large Cap    16.27%    9.56%    12.46%    6.72%    03/31/2017    Show
PIF MDCP S&P400 R3 (PMFMX) 12/06/2000    Stock Investments    Mid-Cap    19.88%    8.51%    12.43%    8.13%    03/31/2017    Show
PIF SMCP S&P 600 R3 (PSSMX) 12/06/2000    Stock Investments    Small Cap    23.73%    8.62%    13.37%    8.00%    03/31/2017    Show
FA DIVERS INTL A (FDVAX) 12/17/1998    Stock Investments    International    7.74%    1.84%    7.22%    1.30%    03/31/2017    Show
FA INTL DISCOVERY A (FAIDX) 12/31/1986    Stock Investments    International    6.18%    0.52%    6.21%    1.63%    03/31/2017    Show
MFS INTL VALUE R3 (MINGX) 10/24/1995    Stock Investments    International    8.66%    5.99%    10.23%    5.31%    03/31/2017    Show
OPPHMR DEV MKTS A (ODMAX) 11/18/1996    Stock Investments    International    15.18%    -0.40%    2.05%    5.09%    03/31/2017    Show
OPPHMR INTL GROWTH A (OIGAX) 03/25/1996    Stock Investments    International    4.14%    -0.09%    6.18%    3.50%    03/31/2017    Show
BLKRK NAT RESOURCE A (MDGRX) 08/02/1985    Stock Investments    Specialty    14.57%    -8.97%    -2.58%    0.56%    03/31/2017    Show
FA ASSET MGR 40% A (FFNAX) 10/09/2007    Blended Investments    N/A    8.04%    3.86%    5.51%    4.11%    03/31/2017    Show
JPM SMART RET 2015 A (JSFAX) 05/15/2006    Blended Investments    N/A    6.91%    3.54%    5.35%    4.32%    03/31/2017    Show
JPM SMART RET 2020 A (JTTAX) 05/15/2006    Blended Investments    N/A    8.86%    4.50%    6.63%    4.84%    03/31/2017    Show
JPM SMART RET 2025 A (JNSAX) 07/31/2007    Blended Investments    N/A    10.20%    4.93%    7.49%    5.25%    03/31/2017    Show
JPM SMART RET 2030 A (JSMAX) 05/15/2006    Blended Investments    N/A    11.41%    5.10%    8.09%    5.20%    03/31/2017    Show
JPM SMART RET 2035 A (SRJAX) 07/31/2007    Blended Investments    N/A    12.54%    5.35%    8.62%    5.52%    03/31/2017    Show
JPM SMART RET 2040 A (SMTAX) 05/15/2006    Blended Investments    N/A    13.59%    5.60%    8.90%    5.57%    03/31/2017    Show
JPM SMART RET 2045 A (JSAAX) 07/31/2007    Blended Investments    N/A    13.63%    5.61%    8.93%    5.81%    03/31/2017    Show
JPM SMART RET 2050 A (JTSAX) 07/31/2007    Blended Investments    N/A    13.63%    5.62%    8.91%    5.82%    03/31/2017    Show
Investments you currently own JPM SMART RET 2055 A (JFFAX) 01/31/2012    Blended Investments    N/A    13.55%    5.61%    9.02%    9.95%    03/31/2017    Show
JPM SMART RET INC A (JSRAX) 05/15/2006    Blended Investments    N/A    6.94%    3.37%    4.63%    4.37%    03/31/2017    Show
FA STABLE VALUE 10/02/1996 7 day yield as of 03/31/2017   1.28%    Bond Investments    Stable Value    1.33%    1.27%    1.27%    1.87%    03/31/2017    Show
FA STRAT INCOME A (FSTAX) 10/31/1994    Bond Investments    Income    7.81%    3.19%    3.84%    5.65%    03/31/2017    Show
METWEST TOT RTN BD M (MWTRX) 03/31/1997    Bond Investments    Income    0.70%    2.33%    3.46%    5.57%    03/31/2017    Show

[MDM]

The table is missing an important column: the cost of the fund.  It may be on a different screen, and labeled "Fees" or "Expenses" or "Expense Ratio", etc.

Values are usually in the range 0.02% to 2.0%.

[MVal]

I am curious about how to invest in my 401K as well. Right now I pay for the "adviser services" in which someone at the account just makes the selections for me and rebalances as needed. The cost is a percentage of my account value, so as I grow, so does the cost. I'd like to get out of it, but I'm terrified of choosing the funds myself.

[MDM]

I am curious about how to invest in my 401K as well. Right now I pay for the "adviser services" in which someone at the account just makes the selections for me and rebalances as needed. The cost is a percentage of my account value, so as I grow, so does the cost. I'd like to get out of it, but I'm terrified of choosing the funds myself.

You might start a new thread showing the choices you have, and the expense ratios for each.  That will likely lead to actionable suggestions that may ease your concerns.  Many things can be scary - until you have done them, and then realize "gee, that wasn't so bad...."

[Another Reader]

These are crap funds, sold to the company by a bad 401 (k) provider.  Fidelity is likely acting as the custodian here.  The best funds are probably the three indexes, small medium and large cap.  My guess is the fees on these are too high as well.  Without knowing the fees of the underlying funds in the target date retirement fund and the fee of that fund, it's difficult to say if that fund has any merit.

Your husband's company is not doing the right thing by their employees.  Someone needs to look at who the provider is and ask HR if they would consider a lower cost provider that offers better choices. 

[NorthernBlitz]

Try reading JL Collin's Stock Series.
http://jlcollinsnh.com/stock-series/

Basically, try to buy low cost indexes and avoid fees.

If you're just starting, I think it wouldn't be unreasonable to just dump it all in a low cost SP500 or total market index fund. As your stash grows, you might then think about more diversification (total bond fund and total international index).

MVal: I would avoid whatever the fee you are being charged for someone else to do your asset allocation. If you're 100% US equities (SP500 or total market), there is no rebalancing. No rebalance necessary in target date funds either (they do that in the fund itself). If you have something like a three fund portfolio (US Stock Market, US Bonds, International Stock Market), you need to (1) pick an asset allocation [% you invest in each of the three funds] and (2) rebalance once a year [reset whatever your current asset allocation is to your desired allocation in (1)]. Once you've figured out how to rebalance once, it will probably take you 10-15 minutes a year.

Re: Picking an asset allocation.
Lost of people will advocate for 100% stocks. This may be a good decision if you can handle not selling when the market drops.
Personally, I keep my bond allocation between 15-20%. That way, I can rebalance when the market drops a bunch and I feel like I'm doing something.

Also, I think that keeping a small amount of bonds will limit the downside risk (likely at the cost of reducing the maximum possible return). I think this because of work that has been done on safe withdrawal rates that show that success rates were higher at 75% US stocks (25% bonds) than at 100% US Stocks. While it's not quite the same (because we're accumulating instead of withdrawing), I think that it's probably not unreasonable.
https://earlyretirementnow.com/2016/12/07/the-ultimate-guide-to-safe-withdrawal-rates-part-1-intro/

Re: poor fund options. Remember that you don't need to have all 3 funds (in a 3 fund portfolio) in the 401k. Some could be in Roth IRA or tIRA, some could be in taxable. For example, if you want international and all the international funds in your 401k suck, hold that in an IRA at Vanguard. If the funds in your 401k suck, contribute to whatever match you have then max out IRA / HSA options, then go back to 401k.

[MDM]

We're really looking for advice on if the JFFAX that his money is in now is good....

It's not terrible.

See http://quotes.morningstar.com/chart/fund/chart.action?t=JFFAX&region=usa&culture=en-US and compare (i.e., type into the box with the very light gray print saying "Compare to Symbol") a couple of Vanguard funds: VASGX and VTTSX.  VASGX is has an 80/20 asset allocation, and VTTSX is 90/10.  JFFAX's results are between those two.  Of course, that's no guarantee of the future.

[ysette9]

I second what others are saying: publish the fees associated with each fund and then we would be happy to make a recommendation for you. While there are definitely bad asset allocation choices, there isn't *one* right answer; there are many right answers. What is important at this stage is that you get into something that is reasonable and low-cost, and that you contribute as much as you can as early as you can. Don't move a muscle when the market does its inevitable up-and-down ride, and you'll be 90% on the path to success.

Once you get educated on the finer nuances (if interested) you can think about exactly what your target asset allocation should be, whether you want to "tilt" any special way, what international exposure you want. blah blah blah. Or you can choose it ignore it all, put your money in a low-cost target date fund, and go do more meaningful things with your life. This stuff DOES NOT have to be complicated and you DO NOT need to feel intimidated. Ask as many questions here as you need.

[DrF]

The fees are high, but the benefit of contributing to your 401k is huge. You could save some money by switching all current assets and future contributions to a mix of:
PLFMX, PMFMX, PSSMX. But, if you don't want to you certainly don't have to. I'd contribute up to the company match (make sure you are getting 100% of the company match!), then I'd put any extra money in a traditional IRA (if you are under the income limit).

In a good 401k, there should be funds available at an annual cost closer to 0.02-0.1% of assets invested.

[Person3]

I don't think there are fees, or I'm looking at it wrong.
Under the fees tab, it has the following column categories:

Name/Inception Date    Asset Class    Category    Gross Expense Ratio**    Shareholder Fees


For all 25, under the Shareholder Fees column it says No Additional Fees Apply.

Or is the Gross Expense Ratio a fee? Those seem to vary between .67% and 1.3%

[Heroes821]

The Gross Expense Ratio should be what we are talking about.

Also since you're here please go read through some MMM and JLCollins planning to retire at 55 while currently taking control of your investments in your twenties sounds crazy. You can shave 15 years off that number possibly more.

[Clean Shaven]

The Expense Ratio is a fee. That's the one people are asking for in responses in this thread.

[Person3]

Okay so those fees seem rather high then. The JFFAX is 1.3%.
Right now he is contributing 10% and the company matches up to 6%.
Would it be better for now to drop his contribution back down to 6% and put more in our HSA or an IRA?
I would like to get index funds with Vanguard eventually, but we are still working on building a big enough emergency fund first. I don't want to slack off on saving for retirement though.

[ysette9]

https://forum.mrmoneymustache.com/investor-alley/investment-order/

This is the sticky thread you need to read that tells you exactly what to do with your money, in what order, and why. Without knowing anything further about your situation, I'd recommend contributing to the 401(k) up to the company match and then putting the extra money in an IRA. Choose Roth or traditional based on your overall income and marginal tax rate (also discussed in that sticky thread). If you have any high interest debt then you should move that up the priority list and kill it before investing outside of 401(k).

[Heroes821]

Okay so those fees seem rather high then. The JFFAX is 1.3%.
Right now he is contributing 10% and the company matches up to 6%.
Would it be better for now to drop his contribution back down to 6% and put more in our HSA or an IRA?
I would like to get index funds with Vanguard eventually, but we are still working on building a big enough emergency fund first. I don't want to slack off on saving for retirement though.

Saving for retirement is much more than just the 401k.  If you are not struggling to pay off debt and are still saving more on top of the 401k 10%, I would leave it.  Perhaps consider making a case study in the case study form.  How close are you to maxing his 401k? (18,000 personal contribution before employer match for 2017).  The investment order thread linked can help you make more sense of what should take priority. Usually capping the 401k is pretty high on the list. Even with a 1% expense ratio your still saving probably 15% or more on taxes.  If you repost the first post with the expense ratios people will probably help find a lower expense fund inside the 401k that is a better call.

Also an HSA is great.

[Car Jack]

Your plan is similar to the one at my last job and perhaps my strategy there will work for you:

Since my plan is crap, list all fund expense ratios.  Put all existing and all future money in whatever has the lowest expense ratio, regardless of what it is.

Understand that I won't be in the job forever, so the strategy is to shove as much money into this crappy plan, get whatever employer match I can (I had zero in my last job) and know that when I leave, I'll move it to a low cost IRA.

When I left, I moved it to Fidelity, where I already had a rollover IRA.  I made sure to look for the bonuses available and picked up a few hundred dollars for the move.  Changed my ER from 0.41 to 0.045.  Weeeeeee. 

Don't back off on how much you put into the 401k necessarily.  Fund to the match....then fill the Roth....then fill the 401k as much as you can.

[ysette9]

And once you have done some self-education on this stuff, consider making noises at work up the food chain to advocate for better 401(k) options. The only way to get not-crap funds is to start demanding it. There are threads here and more over on the Bogleheads forum on how exactly to advocate for better 401(k) choices.

[Person3]

I read the sticky on investment order, and I think it may be best to work on our emergency fund, put more into the HSA and then get an IRA. The only debt we have is our house and a car, which is at 3.5% interest. 
Together we only make about $54 to $55k a year before taxes, so we won't be maxing anything out for a while. I've thought about making a case study, but what we have is so simple I think it would be a waste.
I'll have to look at the threads about advocating for better 401(k) choices. I don't know if he would be comfortable doing that, but we will look into it. It's a fairly small company, with one lady basically working as HR in his location, but it is headquartered in Japan.

[Heroes821]

I know most people use the case study to cut their spending down and help with a budget, but you could use it to get advice on how to handle your debts and investments more clearly.  While a car loan might be at 3%, it's also costing a lot more in insurance if you don't feel you need full coverage and could go down to liability.

[MDM]

Under the fees tab, it has the following column categories:
Name/Inception Date    Asset Class    Category    Gross Expense Ratio**    Shareholder Fees

Okay so those fees seem rather high then. The JFFAX is 1.3%.

What does the footnote for the "**" say?  Also, is there any comment about a fund "Load"?  Often loads are waived in 401k plans, but not always.  JFFAX on the open market has a 4.5% load (see the Morningstar link given previously).  I'll assume this is waived in the 401k but you should check.

Yes, 1.3% is very high in comparison to what you would pay at Vanguard, or low cost options at Fidelity, Schwab, etc.

But see To 401k or not to 401k? That is the question. before (over)reacting.

Note that the 401k plan is charging an extra 0.4% on JFFAX, above the 0.9% Morningstar lists as an expense ratio.  But how much does this cost you?  Looking at the Morningstar results, $10K invested in JFFAX (with no load) on 1/31/2012 would have grown to $16,618 as of yesterday.  That's at a 0.9% ER, and is ~10.2% Compound Annual Growth Rate (CAGR).  If, instead, your CAGR had been 10.2% - 0.4% = 9.8%, that $10K would now be $16,304.

That's either "only $300" or "a full 5%" less gain, depending on how you want to look at it, and is a good example of why "time in the 401k" matters (see the link in this post for details).

Your takeaway from the investment order post looks correct.  Good luck!

[BTH7117]

Chiming in to reiterate the the JLCollinsNH Stock Series.  If you don't have time to read it all right now, check out:

• Keeping It Simple, Considerations and Tools
• Portfolio Ideas to Build and Keep Your Wealth
• The 401(k), 403(b), TSP, IRA & Roth Buckets
• Should You Avoid Your Company's 401k?

I used to be bewildered by all of this as well.  It's not your fault - It is often made to seem complicated in order to sell you something, usually high-cost funds, advisory services or both.  The secret is it really should not be complicated until you're into the upper stratosphere of wealth.  Please take a few hours to learn about this stuff from sources that aren't trying to sell you anything.  It will be the most productive afternoon of your life.

[Person3]

Thank you to the people who recommended JLCollinsNH Stock Series! This is extremely helpful.