401K investment help

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Topic Author
mariocarrillo
Posts: 20
Joined: Tue Sep 29, 2020 3:52 pm

401K investment help

Post by mariocarrillo »

Hi guys,

Beginner here, today I realized that my employer, by default, invested my 401k in a "Target Date 2050 Fund", the asset allocation of this fund is shown in the below image:

Image

This fund also has a high exp. ratio of 0.388% as seen here: Image

I am 30years old; I want to be more aggressive and have less allocation in bonds and cash at this point in my career. I don't have a lot of options to choose from; my employer offers the below 11 core funds that I can choose:

Image

Details:

Image
Image
Image
Image
Image
Image
Image
Image
Image
Image
Image

Do you guys have any recommendations of the best options for me based on the core funds that I can choose? Thank you for your help! :sharebeer
Last edited by mariocarrillo on Wed Apr 14, 2021 6:00 pm, edited 6 times in total.
tananaev
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Re: 401K investment help

Post by tananaev »

Images are not working for me.
brad.clarkston
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Re: 401K investment help

Post by brad.clarkston »

Wow a smart employer, imagine that.

That target fund is great nothing to change just forget about it and max your contributions out if you can.
.3 is not a high ER for a semi-managed target date fund it's fine.

If you want less bonds pick a target date with less bonds there's one for every 5 years of service going out forever.
70% AVGE | 20% FXNAX | 10% T-Bill/Muni
tananaev
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Re: 401K investment help

Post by tananaev »

If you want to go with more aggressive allocation, put everything into VANG INST 500 IDX. Excellent option.
lakpr
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Re: 401K investment help

Post by lakpr »

I am generally an advocate of investing in the target date funds, since they remove emotional aspect out of investing. They do the daily rebalancing between stocks and bonds, thus they sell high and buy low almost by definition.

Then again, 0.388% expense ratio for a target date fund is too high for my taste. I would tolerate the target date funds only if the ER is 0.2% or less, and what you wrote is almost twice as high. *IF* a 3-fund portfolio can be constructed using other available funds in the plan for a meaningful difference in the expense ratio, I would recommend that instead.

So ... I would like to see what funds you have available, but the "Image" is not visible. You may want to upload the images to a site such as photobucket and then include links to those image instead.

Edit: I see the images now, but what are the available choices within the plan? Since the target date fund has an expense ratio of 0.388%, include only those funds that have an ER less than this.
Last edited by lakpr on Wed Apr 14, 2021 5:41 pm, edited 1 time in total.
Topic Author
mariocarrillo
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Re: 401K investment help

Post by mariocarrillo »

tananaev wrote: Wed Apr 14, 2021 5:32 pm Images are not working for me.
Just fixed the images :)
Topic Author
mariocarrillo
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Re: 401K investment help

Post by mariocarrillo »

lakpr wrote: Wed Apr 14, 2021 5:39 pm I am generally an advocate of investing in the target date funds, since they remove emotional aspect out of investing. They do the daily rebalancing between stocks and bonds, thus they sell high and buy low almost by definition.

Then again, 0.388% expense ratio for a target date fund is too high for my taste. I would tolerate the target date funds only if the ER is 0.2% or less, and what you wrote is almost twice as high. *IF* a 3-fund portfolio can be constructed using other available funds in the plan for a meaningful difference in the expense ratio, I would recommend that instead.

So ... I would like to see what funds you have available, but the "Image" is not visible. You may want to upload the images to a site such as photobucket and then include links to those image instead.
I just fixed the images :)
Grt2bOutdoors
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Re: 401K investment help

Post by Grt2bOutdoors »

mariocarrillo wrote: Wed Apr 14, 2021 5:40 pm
tananaev wrote: Wed Apr 14, 2021 5:32 pm Images are not working for me.
Just fixed the images :)
It's helpful if you can provide us with the associated expense ratio for each of the fund options listed. You have a good selection of fund choices, so assembling an aggressive portfolio will not be an issue for you. It's just a matter of cost.

If you want to go active, then the Fidelity Growth Company has a good manager with a long track record of outperformance. This year however, growth is lagging the indexes. If you want a total stock market index approach, use the S&P 500 fund and the Russell 2500 mid/small blend on an 80/20 or 70/30 split for equity. If you want international then use the All World Ex-US index fund by BTC. You then would use the aggregate bond index for your fixed income selection.

So an 80/20 with a 30% international asset allocation would look like this: 56% domestic (44 S&P 500, 12 Russell 2500), 24 All World Ex US and 20 Aggregate Bond Market.
Last edited by Grt2bOutdoors on Wed Apr 14, 2021 5:49 pm, edited 1 time in total.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions
lakpr
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Re: 401K investment help

Post by lakpr »

The expense ratios are not visible, but generally these are the funds you should concentrate on:

1. Vanguard Institutional 500 Index fund
2. BTC Russell 2500 Index fund (view this as a Completion Index, that includes mid-cap and small-cap and those stocks NOT in S&P 500 index; if you invest in a 80:20 ratio between S&P 500 index and Russell 2500 index you own the entire US equities market)
3. BTC ACWI Ex-US IMI (looks to be the complete international equities index fund)
4. BTC US Debt (Bond fund)
Last edited by lakpr on Wed Apr 14, 2021 5:47 pm, edited 1 time in total.
Topic Author
mariocarrillo
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Re: 401K investment help

Post by mariocarrillo »

lakpr wrote: Wed Apr 14, 2021 5:39 pm I am generally an advocate of investing in the target date funds, since they remove emotional aspect out of investing. They do the daily rebalancing between stocks and bonds, thus they sell high and buy low almost by definition.

Then again, 0.388% expense ratio for a target date fund is too high for my taste. I would tolerate the target date funds only if the ER is 0.2% or less, and what you wrote is almost twice as high. *IF* a 3-fund portfolio can be constructed using other available funds in the plan for a meaningful difference in the expense ratio, I would recommend that instead.

So ... I would like to see what funds you have available, but the "Image" is not visible. You may want to upload the images to a site such as photobucket and then include links to those image instead.

Edit: I see the images now, but what are the available choices within the plan? Since the target date fund has an expense ratio of 0.388%, include only those funds that have an ER less than this.
Below are the other target funds but they have an expense ratio higher than 0.388% :(

Image
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Wiggums
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Re: 401K investment help

Post by Wiggums »

You could look at the target date fund furthest from your retirement date and see if the additional stock meets your needs.
"I started with nothing and I still have most of it left."
Grt2bOutdoors
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Re: 401K investment help

Post by Grt2bOutdoors »

mariocarrillo wrote: Wed Apr 14, 2021 5:47 pm
lakpr wrote: Wed Apr 14, 2021 5:39 pm I am generally an advocate of investing in the target date funds, since they remove emotional aspect out of investing. They do the daily rebalancing between stocks and bonds, thus they sell high and buy low almost by definition.

Then again, 0.388% expense ratio for a target date fund is too high for my taste. I would tolerate the target date funds only if the ER is 0.2% or less, and what you wrote is almost twice as high. *IF* a 3-fund portfolio can be constructed using other available funds in the plan for a meaningful difference in the expense ratio, I would recommend that instead.

So ... I would like to see what funds you have available, but the "Image" is not visible. You may want to upload the images to a site such as photobucket and then include links to those image instead.

Edit: I see the images now, but what are the available choices within the plan? Since the target date fund has an expense ratio of 0.388%, include only those funds that have an ER less than this.
Below are the other target funds but they have an expense ratio higher than 0.388% :(

Image
The expense ratio is not 0.388%. If you took that ratio, it would be $38.80 per thousand. The cost is $3.88 per thousand invested which is to say $3.88/$1000 is 0.0388%. That is pretty darn cheap!

FYI - BTC is BlackRock Trust Company. While you don't disclose it, are the target date funds also BTC or their Lifepath funds?
Last edited by Grt2bOutdoors on Wed Apr 14, 2021 5:55 pm, edited 1 time in total.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions
lakpr
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Re: 401K investment help

Post by lakpr »

mariocarrillo wrote: Wed Apr 14, 2021 5:47 pm
Below are the other target funds but they have an expense ratio higher than 0.388% :(
<< Image removed >>
I just replied above on what funds to concentrate on.

For a 30-year old, I would say you should have 10% in bonds; I go by the thumb rule of "Age-20 in bonds". I also usually recommmend between 20% to 30% of the stocks allocation to be invested in international equities.

Using those guidelines in mind, the allocation shakes out to 72:18:10 or 63:27:10 split between US equities / International equities / bond fund.
If you also go by the 80:20 rule for split between S&P 500 and Russel 2500 index funds, you get:

58% S&P 500 Index fund
14% Russell 2500 Index fund
18% BTC ACWI Ex-US IMI fund
10% US Debt fund

OR

50% S&P 500 Index fund
13% Russell 2500 Index fund
27% BTC ACWI ex-US IMI fund
10% US Debt fund
lakpr
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Re: 401K investment help

Post by lakpr »

Grt2bOutdoors wrote: Wed Apr 14, 2021 5:52 pm The expense ratio is not 0.388%. If you took that ratio, it would be $38.80 per thousand. The cost is $3.88 per thousand invested which is to say $3.88/$1000 is 0.0388%. That is pretty darn cheap!

FYI - BTC is BlackRock Trust Company. While you don't disclose it, are the target date funds also BTC or their Lifepath funds?
Uh, sorry ... the image posted in the original post shows that the ER is indeed 0.388%, not 0.0388% ....
Topic Author
mariocarrillo
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Re: 401K investment help

Post by mariocarrillo »

Grt2bOutdoors wrote: Wed Apr 14, 2021 5:43 pm
mariocarrillo wrote: Wed Apr 14, 2021 5:40 pm
tananaev wrote: Wed Apr 14, 2021 5:32 pm Images are not working for me.
Just fixed the images :)
It's helpful if you can provide us with the associated expense ratio for each of the fund options listed. You have a good selection of fund choices, so assembling an aggressive portfolio will not be an issue for you. It's just a matter of cost.

If you want to go active, then the Fidelity Growth Company has a good manager with a long track record of outperformance. This year however, growth is lagging the indexes. If you want a total stock market index approach, use the S&P 500 fund and the Russell 2500 mid/small blend on an 80/20 or 70/30 split for equity. If you want international then use the All World Ex-US index fund by BTC. You then would use the aggregate bond index for your fixed income selection.

So an 80/20 with a 30% international asset allocation would look like this: 56% domestic (44 S&P 500, 12 Russell 2500), 24 All World Ex US and 20 Aggregate Bond Market.
I just added the details of the core funds :D
Grt2bOutdoors
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Re: 401K investment help

Post by Grt2bOutdoors »

lakpr wrote: Wed Apr 14, 2021 5:56 pm
Grt2bOutdoors wrote: Wed Apr 14, 2021 5:52 pm The expense ratio is not 0.388%. If you took that ratio, it would be $38.80 per thousand. The cost is $3.88 per thousand invested which is to say $3.88/$1000 is 0.0388%. That is pretty darn cheap!

FYI - BTC is BlackRock Trust Company. While you don't disclose it, are the target date funds also BTC or their Lifepath funds?
Uh, sorry ... the image posted in the original post shows that the ER is indeed 0.388%, not 0.0388% ....
OP - Create your own completion index in the format the lakpr and I have shown you. Your total expense ratio will be a heck of a lot lower, just don't forget to rebalance as required to keep your asset allocation in with your stated investment goals.
Last edited by Grt2bOutdoors on Wed Apr 14, 2021 6:13 pm, edited 1 time in total.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions
fwellimort
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Re: 401K investment help

Post by fwellimort »

lakpr wrote: Wed Apr 14, 2021 5:46 pm The expense ratios are not visible, but generally these are the funds you should concentrate on:

1. Vanguard Institutional 500 Index fund
2. BTC Russell 2500 Index fund (view this as a Completion Index, that includes mid-cap and small-cap and those stocks NOT in S&P 500 index; if you invest in a 80:20 ratio between S&P 500 index and Russell 2500 index you own the entire US equities market)
3. BTC ACWI Ex-US IMI (looks to be the complete international equities index fund)
4. BTC US Debt (Bond fund)
I too would just look at these choices if you are planning on DIY.
Long term, S&P500 returns should be similar to the US Market (cause S&P500 is almost 85% of the market cap).
You could try to make the ratios of S&P500 to Russell 2500 like 83:17 or whatever but long term returns should be within margin of error
https://www.bogleheads.org/wiki/Approxi ... ock_market

You could make things simple and just go:
US - Vanguard Institutional 500 Index Fund or Vanguard Institutional 500/BTC Russell 2500
International - BTC ACWI Ex-US IMI
Bond - BTC US Debt

Choose your percentages you are comfortable with for US:International:Bond.
https://www.bogleheads.org/wiki/Three-fund_portfolio

You could try to emulate the target date fund ratios.
Some people do 120 - age = bond.
The global market cap of US:International is about the ratio of 6:4. Some people base off that ratio. Others don't.
Last edited by fwellimort on Wed Apr 14, 2021 6:15 pm, edited 2 times in total.
lakpr
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Re: 401K investment help

Post by lakpr »

<<deleted>>
Last edited by lakpr on Wed Apr 14, 2021 6:16 pm, edited 1 time in total.
lakpr
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Re: 401K investment help

Post by lakpr »

fwellimort wrote: Wed Apr 14, 2021 6:13 pm You could try to emulate the target date fund ratios.
Some people do 120 - age = bond.
The global market cap of US:International is about the ratio of 6:4. Some people base off that ratio. Others don't.
I think you mean "120-age in stocks", not bonds; that comes out to be the same thing as "Age-20 in bonds". Surely you aren't suggesting 90% bonds for the OP :)
fwellimort
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Re: 401K investment help

Post by fwellimort »

lakpr wrote: Wed Apr 14, 2021 6:15 pm I think you mean "120-age in stocks", not bonds; that comes out to be the same thing as "Age-20 in bonds". Surely you aren't suggesting 90% bonds for the OP :)
Ah ya. That way. I am a failure of a computer science, math major :D
Topic Author
mariocarrillo
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Re: 401K investment help

Post by mariocarrillo »

Thank you so much for all your replies, this is really helpful, I’ll work on creating my portfolio in the upcoming days based on your suggestions and post the final result here. Again, thanks for sharing the knowledge :sharebeer
Topic Author
mariocarrillo
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Re: 401K investment help

Post by mariocarrillo »

I went with the below numbers based on your recommendations:

60% S&P 500 Index fund
12% Russell 2500 Index fund
18% BTC ACWI Ex-US IMI fund
10% US Debt fund

Image

Will my new expense ratio be the total of adding the new exp ratios of each fund?

VANG INST 500 IDX
0.011%

BlackRock Russell 2500® Index Fund
0.040%

BlackRock MSCI ACWI ex-US IMI Index Fund
0.055%

BlackRock U.S. Debt Index Fund
0.023%

So 0.011% + 0.040% + 0.055% + 0.023% = 0.129% vs. 0.388% (target fund) I had before? Thats quite an improvement :D
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ruralavalon
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Re: 401K investment help

Post by ruralavalon »

Those are good fund choices in my opinion.

Your portfolio expense ratio is NOT the total of the expense ratios of all of the funds added togetther.

Your portfolio expense ratio is the weighted average.
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lakpr
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Re: 401K investment help

Post by lakpr »

+1 to what ruralavalon said.

Your portfolio expense ratio would be, given your desired percentages:

60% * 0.011%
+
12% * 0.04%
+
18% * 0.055%
+
10% * 0.023%
=============
= 0.0236%
=============
Topic Author
mariocarrillo
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Re: 401K investment help

Post by mariocarrillo »

Excellent! thank you for your replies. :sharebeer
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