Requesting feedback on the fund choices for my 457b

[HasHas]

Dear Bogleheads,

I am considering making maximum employee contributions to my 457b starting next year. I just checked the website of the vendor that provides 457b in our state and found the following three funds that appear to be sufficient for my three fund portfolio:

• Stock Fund (S&P 500 Index Fund with an expense ratio of 0.01%)

• International Stock Fund (Expense ratio: 0.06%)

• Bond Fund (US aggregate bond index fund with an expense ratio of 0.03%)

Could someone take a quick look at these funds and let me know if they are similar to VFIAX, VTIAX, and VBTLX? Also, do you see any other hidden fee in the above documents?

Note about Fees for the 457b Plan

An annual record-keeping fee of $30.50 will be deducted from your account on a monthly basis ($2.54 per month).

Assuming that I will be making maximum employee contribution to this account for at least a few years, do you think this fee is low enough to be ignored?

[Soon2BXProgrammer]

Those are reasonable funds.
The $30/year fee is insignificant and should be ignored.

[tommy85]

Only suggestion would be to use total market fund if available. I pay $4.50/ month for our state's 457b just as a data point to compare to. I think your fees is reasonable.

[mesaverde]

You're extremely fortunate to have a 457b with these low cost funds. A benefit many (most?) Amercans don't have . The ability to withdraw $ penalty free at any age (after leaving your job) 1. allows for the ability to tap these funds at early retitement 2. acts as an emergency fund if you lose your job
If there's any chance you may want to retire "early" I suggest maxing this out if you can. I have a 457b and invest in those three funds (except I use total U.S. market instead of S&P 500, but not a huge difference). Maxing it out it takes me from the 22% federal income tax bracket to the 12% bracket- a risk free savings of 10% on that portion of my income. Investment returns are the icing on the cake.

[retiredjg]

Looks like a good plan with good choices. The fee is common for governmental 457 and low enough to ignore.

[HasHas]

OP here.

Thank you everyone for your feedback. It looks like there is no reason not to max out my 457b now. I will make this change right away.

[HasHas]

Only suggestion would be to use total market fund if available.

Yes, we do have one available: Money Market Fund.

There is also a Stable Value Fund available.

Did you mean to say that I should keep a part of my fixed income investment in a money market fund? Would this still be the case if I don't need to access these funds in the foreseeable future? Thanks.

I pay $4.50/ month for our state's 457b just as a data point to compare to. I think your fees is reasonable.

OK, thanks. It is good to have this data point.

[tommy85]

Only suggestion would be to use total market fund if available.

Yes, we do have one available: Money Market Fund.

There is also a Stable Value Fund available.

Did you mean to say that I should keep a part of my fixed income investment in a money market fund? Would this still be the case if I don't need to access these funds in the foreseeable future? Thanks.

I pay $4.50/ month for our state's 457b just as a data point to compare to. I think your fees is reasonable.

OK, thanks. It is good to have this data point.

Sorry, I meant Vanguard Total Stock Market Index Fund Admiral Shares (VTSAX) or something equivalent instead of S&P500 index fund if you have the option. But like somebody else already said, it's a small difference.

[HasHas]

Sorry, I meant Vanguard Total Stock Market Index Fund Admiral Shares (VTSAX) or something equivalent instead of S&P500 index fund if you have the option. But like somebody else already said, it's a small difference.

Ok, that makes sense. A total stock market index fund (like VTSAX) was my first preference too. Unfortunately, I did not find anything like that in my 457(b). I did find the following, which can perhaps be combined with the S&P 500 index fund to get exposure to the complete market:

Small/Mid-Cap Stock Fund

However, if the difference is small, I am not sure if it will be worth the hassle.

[CyclingDuo]

Sorry, I meant Vanguard Total Stock Market Index Fund Admiral Shares (VTSAX) or something equivalent instead of S&P500 index fund if you have the option. But like somebody else already said, it's a small difference.

Ok, that makes sense. A total stock market index fund (like VTSAX) was my first preference too. Unfortunately, I did not find anything like that in my 457(b). I did find the following, which can perhaps be combined with the S&P 500 index fund to get exposure to the complete market:

Small/Mid-Cap Stock Fund

However, if the difference is small, I am not sure if it will be worth the hassle.

That's very typical in 457b and 403b plans not to have the Total Stock Market Index Fund. So one approximates it using the S&P 500 (sometimes called an "institutional" fund), a Mid Cap and Small Cap Fund - or combination of those. The Wiki explains how to approximate the Total Stock Market Fund here:

https://www.bogleheads.org/wiki/Approxi ... ock_market

[HasHas]

That's very typical in 457b and 403b plans not to have the Total Stock Market Index Fund. So one approximates it using the S&P 500 (sometimes called an "institutional" fund), a Mid Cap and Small Cap Fund - or combination of those. The Wiki explains how to approximate the Total Stock Market Fund here:

https://www.bogleheads.org/wiki/Approxi ... ock_market

Thanks. That's what I suspected too. So, here are the two options that I have:

• An index fund tracking S&P 500 (Link).

• An index fund tacking Russell 2500 (Link).

What should be the percentage contributions to these funds to approximate the total market?

[ruralavalon]

Dear Bogleheads,

I am considering making maximum employee contributions to my 457b starting next year. I just checked the website of the vendor that provides 457b in our state and found the following three funds that appear to be sufficient for my three fund portfolio:

• Stock Fund (S&P 500 Index Fund with an expense ratio of 0.01%)

• International Stock Fund (Expense ratio: 0.06%)

• Bond Fund (US aggregate bond index fund with an expense ratio of 0.03%)

Could someone take a quick look at these funds and let me know if they are similar to VFIAX, VTIAX, and VBTLX? Also, do you see any other hidden fee in the above documents?

Those are excellent fund choices.

The international stock fund is very similar to Vanguard Total International Stock Index Fund (VTIAX).

The bond fund is nearly identical to Vanguard Total Bond Market Index Fund (VBTLX).

The S&P 500 index fund should be identical to Vanguard 500 Index Fund (VFIAX).

In my opinion in an employer plan which lacks a total stock market index fund a S&P 500 index fund is good enough by itself for investing in U.S.stocks.

A S&P 500 index fund coverscov over 80% of the U.S. stock market invests in stocks of selected large-cap and mid-cap U.S. companies. In the 28years since the creation of the first total stock market index fund the two types of funds have had almost identical performance. Portfolio Visualizer, 1993-2020.

Note about Fees for the 457b Plan

An annual record-keeping fee of $30.50 will be deducted from your account on a monthly basis ($2.54 per month).

Assuming that I will be making maximum employee contribution to this account for at least a few years, do you think this fee is low enough to be ignored?

Yes, the fee is trivial in my opinion.

[HasHas]

Those are excellent fund choices. They are very similar to those Vanguard funds, two should be identical.

Thanks, ruralavalon. By the way, I did not know that I had access to 457(b) when I sought advice in the other thread a few weeks back (viewtopic.php?f=1&t=330730), where you kindly helped me with your thoughtful suggestions. I am now making maximum allowed contributions to 403(b), 457(b), and two Roth IRAs. In my 457(b), I am planning to just hold US stock market fund. I know you said once that S&P 500 is good enough if one does not have access to a total stock market fund. However, in my 457(b), I do have access to a low cost index fund that tracks Russell 2500. If I invest in both (S&P 500 and Russell 2500), what percentage in each will closely approximate the total US stock market? Thanks.

EDIT: I found the following thread in which you have provided a very comprehensive answer to the question that I posed to you above: viewtopic.php?t=234345. It appears that even if I have access to Russell 2500, the performance of S&P 500 and TSM funds are too close to even bother adding Russell 2500.

For my own future reference, the answer to the above question is that ~80% S&P 500 and ~20% Russell 2500 will be close enough to a total stock market fund.

[CyclingDuo]

That's very typical in 457b and 403b plans not to have the Total Stock Market Index Fund. So one approximates it using the S&P 500 (sometimes called an "institutional" fund), a Mid Cap and Small Cap Fund - or combination of those. The Wiki explains how to approximate the Total Stock Market Fund here:

https://www.bogleheads.org/wiki/Approxi ... ock_market

Thanks. That's what I suspected too. So, here are the two options that I have:

• An index fund tracking S&P 500 (Link).

• An index fund tacking Russell 2500 (Link).

What should be the percentage contributions to these funds to approximate the total market?

From the Wiki linked above, the suggestion for the portion of your portfolio in the retirement account that covers your US Domestic Equity portion, the suggestion is in that account to cover the US stocks be divided up using these percentages...

83% Vanguard 500 Index Fund
17% iShares Russell 2000 Index
Updated 27 Dec 2018
https://www.bogleheads.org/wiki/Approxi ... ock_market

CyclingDuo

[HasHas]

From the Wiki linked above, the suggestion for the portion of your portfolio in the retirement account that covers your US Domestic Equity portion, the suggestion is in that account to cover the US stocks be divided up using these percentages...

83% Vanguard 500 Index Fund
17% iShares Russell 2000 Index
Updated 27 Dec 2018
https://www.bogleheads.org/wiki/Approxi ... ock_market

CyclingDuo

Thanks, CyclingDuo. I appreciate the inputs.