Ways to lower the Expense Ratio

Have a question about your personal investments? No matter how simple or complex, you can ask it here.
Post Reply
Topic Author
Zucca
Posts: 6
Joined: Sun Sep 17, 2017 7:35 pm

Ways to lower the Expense Ratio

Post by Zucca »

THANK YOU TO ALL WHO ANSWERED, I AM EDITING THE ORIGINAL POST AS WE GO FOR THOSE WHO ASKED FOR MORE INFO.
HERE ARE THE FUNDS AVAILABLE IN MY 403(B): https://www.guidestonefunds.com/Funds


58 yrs old (will hit 59 + ½ in Oct. 2022).

Current 403(b) AA: GEQZX 13%, GVEZX 17%, GGEZX 13%, GSCZX 27%, GIEZX 15%, GEMZX 15%

Average ER: 1.07 % = Too High! Could be reduced to as low as 0.40% within the same 403 (b) if I put ALL of it in GEQZX, but I am scared of not diversifying enough, even though I am still working under the assumption that I need to stay in stocks because “Social Security IS my bonds and they are slow enough!” (quoting myself).

So I started looking for other possible ways to lower the ER; ideally, I would love to just grab the whole thing (or let’s say 90% of it, since my employer still contributes a small set amount and I don’t plan to retire immediately) and plop it into a retirement account (what kind?) with Vanguard or such that offers a better choice of lower-cost funds, keeping some diversification and avoiding a tax catastrophe. While I read up on pros, cons, taxes, IRAs, and rollovers, does anything special come to mind that I may be overlooking?

To complete the picture: Currently contributing $1,100/mo to 403(b) (bal. about $600k) and $1,400/mo to taxable acct with Vanguard (bal. about $65k, all in stock funds: VTSAX, VIGAX, VTIAX, VWIGX, VMGMX). My employer adds $106/mo to the 403(b) no matter if I put in more or less. (Concern about rollover: if I pull everything out of the 403(b) to set up an IRA with Vanguard, for example, wouldn't I then be more restricted as to how much I can put into the new IRA per year, and therefore lose a lot of the benefits of compounding while I save a little on ER? Or is there a way to avoid that problem too?)
Wife (49) working FT for a different employer; no mortgage, no debt, no other accounts or insurance policies that are likely to have any major impact on our finances, 2 grown kids (24 and 21) between college and grad school. MFJ, 7% state tax bracket, 12% federal so far, but may creep up soon because of wife's new FT status at work (which also includes automatic contributions to a pension, and I need to find out more about it).
As far as my 403(b) again, I will check on in-service distributions at 59 1/2, and thank you, I thought it was a given but I need to make sure. I doubt they allow self-brokerage, but will check too.

Your input is appreciated, and THANK YOU in advance for your wisdom.
Last edited by Zucca on Sun Jul 25, 2021 1:59 pm, edited 2 times in total.
Marshall-Dillon
Posts: 54
Joined: Sat Dec 12, 2020 11:35 am

Re: Ways to lower the Expense Ratio

Post by Marshall-Dillon »

Do they offer a self directed brokerage option?
Jack FFR1846
Posts: 18461
Joined: Tue Dec 31, 2013 6:05 am
Location: 26 miles, 385 yards west of Copley Square

Re: Ways to lower the Expense Ratio

Post by Jack FFR1846 »

When my employer had a crap 401k with only high ER choices, I chose the best of the bad cost funds. They changed 401k providers from one bad one to another bad one. I considered it simply as a place to put retirement money into. I knew I would not work there forever. Both choices were around 0.41% for an ER and were literally the lowest ER choice in the plan. First 401k, I was in a mid cap equity fund. Next one was in a bond fund.

I now have a number of zero expense investments which includes FZROX in my tIRA, BRK/b in my taxable and $400k worth of US Savings bonds. These investments keep my overall ER well below 0.03%. I'm a huge believer in "You get what you don't pay for".
Bogle: Smart Beta is stupid
User avatar
galawdawg
Posts: 5231
Joined: Thu Dec 14, 2017 11:59 am
Location: Georgia

Re: Ways to lower the Expense Ratio

Post by galawdawg »

Zucca wrote: Thu Jul 22, 2021 10:35 pm 58 yrs old (will hit 59 + ½ in Oct. 2022).

Current 403(b) AA: (roughly) 100% equities - 70% US 30% Intl – 75% LC 25% SC - somewhat unevenly split between 6 different funds.

Average ER: 1.07 % = Too High! Could be reduced to as low as 0.40% within the same 403 (b) if I put ALL of it in their SP 500-tracking fund (behaves much like VTSAX), but I am scared of not diversifying enough, even though I am still working under the assumption that I need to stay in stocks because “Social Security IS my bonds and they are slow enough!” (quoting myself).

So I started looking for other possible ways to lower the ER; ideally, I would love to just grab the whole thing (or let’s say 90% of it, since my employer still contributes a small set amount and I don’t plan to retire immediately) and plop it into a retirement account (what kind?) with Vanguard or such that offers a better choice of lower-cost funds, keeping some diversification and avoiding a tax catastrophe. While I read up on pros, cons, taxes, IRAs, and rollovers, does anything special come to mind that I may be overlooking? Your input is appreciated, and THANK YOU in advance for your wisdom.
Welcome to Bogleheads!

A list of the funds available in your 403(b) (name and ticker preferred) and the expense ratio of each would be helpful to provide informed suggestions.
User avatar
JoMoney
Posts: 16260
Joined: Tue Jul 23, 2013 5:31 am

Re: Ways to lower the Expense Ratio

Post by JoMoney »

Have you looked into seeing if there is someone you can talk to and petition to get the plan changed to offer lower cost options?
If you like your job and don't want to make waves, it may not be the route you want to go down, but there is a growing number of lawsuits over 401k and 403b's that are challenging the plans for failing to meet their fiduciary responsibility for having high-cost funds when there are much lower cost equivalents.
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham
User avatar
Stinky
Posts: 14088
Joined: Mon Jun 12, 2017 11:38 am
Location: Sweet Home Alabama

Re: Ways to lower the Expense Ratio

Post by Stinky »

Welcome to the Forum!

Does your plan offer in-service withdrawals at age 59.5? If so, you could roll money from your workplace plan into an IRA at a provider of your choosing when you reach 59.5 in 15 months.

Prior to that time, and based on what you’ve posted so far, the S&P 500 fund seems like a fine choice. Expenses are a little high, but not terrible. And the fund is widely diversified, covering about 80% of the US equity market.
Retired life insurance company financial executive who sincerely believes that ”It’s a GREAT day to be alive!”
mmcmonster
Posts: 615
Joined: Sun Jan 12, 2014 12:18 pm

Re: Ways to lower the Expense Ratio

Post by mmcmonster »

Zucca wrote: Thu Jul 22, 2021 10:35 pm 58 yrs old (will hit 59 + ½ in Oct. 2022).

Current 403(b) AA: (roughly) 100% equities - 70% US 30% Intl – 75% LC 25% SC - somewhat unevenly split between 6 different funds.

Average ER: 1.07 % = Too High! Could be reduced to as low as 0.40% within the same 403 (b) if I put ALL of it in their SP 500-tracking fund (behaves much like VTSAX), but I am scared of not diversifying enough, even though I am still working under the assumption that I need to stay in stocks because “Social Security IS my bonds and they are slow enough!” (quoting myself).
[...]
You mentioned yourself that the plan has an option which tracks the S&P500 with an ER of 0.4%. That's not too bad. And that is very diversified: The S&P500 mirrors very closely a Total Stock Market fund.

I would suggest that you put 100% of the plan in the fund that tracks the S&P500 with an ER of 0.4%. For your international exposure, I would get that on the taxable side, if possible. If you don't have enough $$$ in your taxable account, you can slowly add to a taxable account and get your overall ratio of 70/30 (US/International) over time.
hi_there
Posts: 1182
Joined: Sat Aug 29, 2020 7:00 pm

Re: Ways to lower the Expense Ratio

Post by hi_there »

Saving 0.60% on expense ratio is well worth moving from a Total Stock Market allocation to SPX, which has 85% of the same components, and 90% correlation with the remaining 15%.
User avatar
retiredjg
Posts: 53989
Joined: Thu Jan 10, 2008 11:56 am

Re: Ways to lower the Expense Ratio

Post by retiredjg »

Welcome to the forum. :happy

There is plenty of diversification in the 500 index. Nice to have small cap too if you want, but not nice enough to pay a lot for it. And it seems a little odd to need 6 funds to cover just US stocks. One will do (the 500 index).

The idea of being at 100% stocks at your age is somewhat alarming. What are you going to do if your portfolio dives to just half it's value? The purpose of bonds is to preserve your money when times are bad. It is time for you to start thinking of preserving what you have rather than putting it at risk.
finite_difference
Posts: 3626
Joined: Thu Jul 09, 2015 7:00 pm

Re: Ways to lower the Expense Ratio

Post by finite_difference »

I would complain about the high ERs.
The most precious gift we can offer anyone is our attention. - Thich Nhat Hanh
Topic Author
Zucca
Posts: 6
Joined: Sun Sep 17, 2017 7:35 pm

Re: Ways to lower the Expense Ratio

Post by Zucca »

Marshall-Dillon wrote: Fri Jul 23, 2021 6:32 am Do they offer a self directed brokerage option?
Not that I'm aware of, but I'll take a second look. Thank you.
Topic Author
Zucca
Posts: 6
Joined: Sun Sep 17, 2017 7:35 pm

Re: Ways to lower the Expense Ratio

Post by Zucca »

retiredjg wrote: Fri Jul 23, 2021 9:36 am Welcome to the forum. :happy

There is plenty of diversification in the 500 index. Nice to have small cap too if you want, but not nice enough to pay a lot for it. And it seems a little odd to need 6 funds to cover just US stocks. One will do (the 500 index).

The idea of being at 100% stocks at your age is somewhat alarming. What are you going to do if your portfolio dives to just half it's value? The purpose of bonds is to preserve your money when times are bad. It is time for you to start thinking of preserving what you have rather than putting it at risk.
Thank you. I am considering what you said and will probably do something about it soon.
Topic Author
Zucca
Posts: 6
Joined: Sun Sep 17, 2017 7:35 pm

Re: Ways to lower the Expense Ratio

Post by Zucca »

Jack FFR1846 wrote: Fri Jul 23, 2021 6:38 am When my employer had a crap 401k with only high ER choices, I chose the best of the bad cost funds. They changed 401k providers from one bad one to another bad one. I considered it simply as a place to put retirement money into. I knew I would not work there forever. Both choices were around 0.41% for an ER and were literally the lowest ER choice in the plan. First 401k, I was in a mid cap equity fund. Next one was in a bond fund.

I now have a number of zero expense investments which includes FZROX in my tIRA, BRK/b in my taxable and $400k worth of US Savings bonds. These investments keep my overall ER well below 0.03%. I'm a huge believer in "You get what you don't pay for".
Thank you.
Topic Author
Zucca
Posts: 6
Joined: Sun Sep 17, 2017 7:35 pm

Re: Ways to lower the Expense Ratio

Post by Zucca »

Stinky wrote: Fri Jul 23, 2021 8:04 am Welcome to the Forum!

Does your plan offer in-service withdrawals at age 59.5? If so, you could roll money from your workplace plan into an IRA at a provider of your choosing when you reach 59.5 in 15 months.

Prior to that time, and based on what you’ve posted so far, the S&P 500 fund seems like a fine choice. Expenses are a little high, but not terrible. And the fund is widely diversified, covering about 80% of the US equity market.
Thanks. Sounds like I'm headed that way.
Topic Author
Zucca
Posts: 6
Joined: Sun Sep 17, 2017 7:35 pm

Re: Ways to lower the Expense Ratio

Post by Zucca »

galawdawg wrote: Fri Jul 23, 2021 6:41 am
Zucca wrote: Thu Jul 22, 2021 10:35 pm 58 yrs old (will hit 59 + ½ in Oct. 2022).

Current 403(b) AA: (roughly) 100% equities - 70% US 30% Intl – 75% LC 25% SC - somewhat unevenly split between 6 different funds.

Average ER: 1.07 % = Too High! Could be reduced to as low as 0.40% within the same 403 (b) if I put ALL of it in their SP 500-tracking fund (behaves much like VTSAX), but I am scared of not diversifying enough, even though I am still working under the assumption that I need to stay in stocks because “Social Security IS my bonds and they are slow enough!” (quoting myself).

So I started looking for other possible ways to lower the ER; ideally, I would love to just grab the whole thing (or let’s say 90% of it, since my employer still contributes a small set amount and I don’t plan to retire immediately) and plop it into a retirement account (what kind?) with Vanguard or such that offers a better choice of lower-cost funds, keeping some diversification and avoiding a tax catastrophe. While I read up on pros, cons, taxes, IRAs, and rollovers, does anything special come to mind that I may be overlooking? Your input is appreciated, and THANK YOU in advance for your wisdom.
Welcome to Bogleheads!

A list of the funds available in your 403(b) (name and ticker preferred) and the expense ratio of each would be helpful to provide informed suggestions.
Good point. Here is the full picture: https://www.guidestonefunds.com/Funds
tomsense76
Posts: 1428
Joined: Wed Oct 14, 2020 1:52 am

Re: Ways to lower the Expense Ratio

Post by tomsense76 »

Zucca wrote: Fri Jul 23, 2021 4:39 pm
retiredjg wrote: Fri Jul 23, 2021 9:36 am Welcome to the forum. :happy

There is plenty of diversification in the 500 index. Nice to have small cap too if you want, but not nice enough to pay a lot for it. And it seems a little odd to need 6 funds to cover just US stocks. One will do (the 500 index).

The idea of being at 100% stocks at your age is somewhat alarming. What are you going to do if your portfolio dives to just half it's value? The purpose of bonds is to preserve your money when times are bad. It is time for you to start thinking of preserving what you have rather than putting it at risk.
Thank you. I am considering what you said and will probably do something about it soon.
Also can place other components in IRAs, HSAs, taxable, etc. No need to hold everything in the 401k (especially if the costs are too high)
"Anyone who claims to understand quantum theory is either lying or crazy" -- Richard Feynman
User avatar
retiredjg
Posts: 53989
Joined: Thu Jan 10, 2008 11:56 am

Re: Ways to lower the Expense Ratio

Post by retiredjg »

'That's an ugly list. :(

I'd use the equity index and medium duration bond fund. If there is a stable value fund (sometimes listed in a different place), that might be better than the bond fund.
bloom2708
Posts: 9855
Joined: Wed Apr 02, 2014 2:08 pm

Re: Ways to lower the Expense Ratio

Post by bloom2708 »

Retire and move your 403b to Vanguard or Fidelity. That saves on the expense ratios.
User avatar
ruralavalon
Posts: 26297
Joined: Sat Feb 02, 2008 9:29 am
Location: Illinois

Re: Ways to lower the Expense Ratio

Post by ruralavalon »

Zucca wrote: Thu Jul 22, 2021 10:35 pm 58 yrs old (will hit 59 + ½ in Oct. 2022).

Current 403(b) AA: (roughly) 100% equities - 70% US 30% Intl – 75% LC 25% SC - somewhat unevenly split between 6 different funds.

Average ER: 1.07 % = Too High! Could be reduced to as low as 0.40% within the same 403 (b) if I put ALL of it in their SP 500-tracking fund (behaves much like VTSAX), but I am scared of not diversifying enough, even though I am still working under the assumption that I need to stay in stocks because “Social Security IS my bonds and they are slow enough!” (quoting myself).

So I started looking for other possible ways to lower the ER; ideally, I would love to just grab the whole thing (or let’s say 90% of it, since my employer still contributes a small set amount and I don’t plan to retire immediately) and plop it into a retirement account (what kind?) with Vanguard or such that offers a better choice of lower-cost funds, keeping some diversification and avoiding a tax catastrophe. While I read up on pros, cons, taxes, IRAs, and rollovers, does anything special come to mind that I may be overlooking? Your input is appreciated, and THANK YOU in advance for your wisdom.
Good point. Here is the full picture: https://www.guidestonefunds.com/Funds
In my opinion an S&P 500 index fund is good enough by itself for investing in U.S. stocks, long term. Over the 29 years since the creation of the first total stock market index fund S&P 500 index funds have had performance almost identical to a total stock market index fund. Portfolio Visualizer, 1993-2021).

Do you have other accounts like an IRA or taxable brokerage account? If so at which fund firm or brokerage do th have each account, and what funds do you currently use in each account?

It is often a good idea to coordinate investments among all accounts treating all accounts together as a single unified portfolio, rather than treat each account separately. It is not necessary to have all elements of the desired asset allocation in every account.

So if no good bond fund or international stock fund is offered in the 403b, you might hold those allocations in the other accounts, and just use the S&P 500 index fund alone in your 403b account.

How much in dollars) do you currently contribute annually to investing (total, all accounts)? Is there an employer match available in your employer's 403b plan?

I agree with retiredjg that GuideStone Funds Medium-Duration Bd Inv (GMDZX) ER 0.66% in your employer's 403b plan is a reasonable choice in a pinch.

Does your employer's 403b plan have a brokerage window you can use to buy funds at a designated brokerage? If so which brokerage, and what fees are charged for its use?

Will your employer's 403b plan permit in-service distributions when you hit age 59.5 next fall? If so you can then rollover your 403b account to an IRA at a low cost fund provider like Vanguard, Fidelity or Schwab.

Please simply add this new information to your original post using the edit button (the pencil icon near the upper right corner of your post), it helps a lot if all of your information is in one place.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link: Bogleheads® investment philosophy
User avatar
galawdawg
Posts: 5231
Joined: Thu Dec 14, 2017 11:59 am
Location: Georgia

Re: Ways to lower the Expense Ratio

Post by galawdawg »

retiredjg wrote: Fri Jul 23, 2021 4:52 pm 'That's an ugly list. :(

I'd use the equity index and medium duration bond fund. If there is a stable value fund (sometimes listed in a different place), that might be better than the bond fund.
I agree. I'd pick those two funds in whatever stock/bond allocation you desire.
User avatar
NewMoneyMustBeSmart
Posts: 729
Joined: Sat Jun 01, 2019 10:28 pm
Location: Midwest

Re: Ways to lower the Expense Ratio

Post by NewMoneyMustBeSmart »

Zucca wrote: Fri Jul 23, 2021 4:41 pm
Stinky wrote: Fri Jul 23, 2021 8:04 am Welcome to the Forum!

Does your plan offer in-service withdrawals at age 59.5? If so, you could roll money from your workplace plan into an IRA at a provider of your choosing when you reach 59.5 in 15 months.

Prior to that time, and based on what you’ve posted so far, the S&P 500 fund seems like a fine choice. Expenses are a little high, but not terrible. And the fund is widely diversified, covering about 80% of the US equity market.
Thanks. Sounds like I'm headed that way.
Consider using portfolio visualizer to compare VTI to VOO:

https://www.portfoliovisualizer.com/bac ... ion2_2=100
-- | Few are those who see with their own eyes and feel with their own hearts - Einstein | *Everything I write here is an unreliable opinion*
User avatar
ruralavalon
Posts: 26297
Joined: Sat Feb 02, 2008 9:29 am
Location: Illinois

Re: Ways to lower the Expense Ratio

Post by ruralavalon »

It is good to see that you are debt free, and using only stock index funds in your taxable brokerage account.

Zucca wrote: Thu Jul 22, 2021 10:35 pmTo complete the picture: Currently contributing $1,100/mo to 403(b) (bal. about $600k) and $1,400/mo to taxable acct with Vanguard (bal. about $65k, all in stock funds: VTSAX, VIGAX, VTIAX, VWIGX, VMGMX). My employer adds $106/mo to the 403(b) no matter if I put in more or less.
I stead of making contributions ($16.k annually) to a taxable account I suggest two IRAs one for for each of you at a low cost provider like Vanguard or Fidelity, and contributions of $7k annually for you and $6k annually for your wife.


Any extra can be used to increase contributions to your 403b account. The employer contribution does not affect the annual employee contribution limit. It's extra.

In general it's usually better to make maximum annual contributions to all available tax-advantaged accounts as a priority ahead of investing in a taxable brokerage account. Wiki article "Prioritizing Investments", link.

Wife (49) working FT for a different employer
Zucca wrote: Thu Jul 22, 2021 10:35 pmWife (49) independently employed
Since she is self employed another possibility for a tax-advantaged account is an individual (solo) 401k. Vanguard, "Compare our SEP-IRAs, i401(k)s & SIMPLE IRAs", link. Fidelity and Schwab both offer similar plans.

Does she have any employees in her business?



Zucca wrote: Thu Jul 22, 2021 10:35 pm(Concern about rollover: after I do that, wouldn't I be more restricted as to how much I can put into the IRA per year? Or is there a way to avoid that problem too?)
You had not mentioned having an IRA.

A rollover has no impact on the annual contribution limit for an IRA, $7k if 50 or older and $6k under age 50.

Do you each have an IRA? Which kind of IRA, Roth or traditional? At which fund firm or brokerage? What funds do you use in each IRA? Please give fund names, tickers and expense ratios.

What is your tax bracket, both federal and state? What is your tax filing status?

Again please simply add this information to your original post using the edit button.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link: Bogleheads® investment philosophy
User avatar
ruralavalon
Posts: 26297
Joined: Sat Feb 02, 2008 9:29 am
Location: Illinois

Re: Ways to lower the Expense Ratio

Post by ruralavalon »

Wife (49) working FT for a different employer; no mortgage, no debt, no other accounts or insurance policies that are likely to have any major impact on our finances, 2 grown kids (24 and 21) between college and grad school. MFJ, 7% state tax bracket, 12% federal so far, but may creep up soon because of wife's new FT status at work (which also includes automatic contributions to a pension, and I need to find out more about it).
I stead of making contributions ($16.k annually) to a taxable account I suggest two IRAs one for for each of you at a low cost provider like Vanguard or Fidelity, and contributions of $7k annually for you and $6k annually for your wife.

The annual contribution limit for an IRA is $7k if 50 or older, and $6k under age 50.

Any extra can be used to increase contributions to your 403b account. The employer contribution does not affect the annual employee contribution limit for the 403b. It's extra.

In general it's usually better to make maximum annual contributions to all available tax-advantaged accounts as a priority ahead of investing in a taxable brokerage account, and contributions to the two (his and hers) IRAs should be a priority over contributions to your employer's relatively higher expense 403b plan. Wiki article "Prioritizing Investments", link.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link: Bogleheads® investment philosophy
Post Reply