portfolio high expense ratios

Have a question about your personal investments? No matter how simple or complex, you can ask it here.
Post Reply
Topic Author
Eblana1
Posts: 38
Joined: Sat Aug 01, 2020 7:08 am

portfolio high expense ratios

Post by Eblana1 »

Hi all –
As a total newbie to investing starting in 2020 (with much help here – thank you) I consolidated accounts to Vanguard and selected a 3 fund portfolio, originally setting my asset allocation to: 25% bonds, 60% stocks, 15% international stocks. After doing the math, I am actually at: 19% bonds, 67% stocks, 13% international, and 1% REIT. I am still wide open to any suggestions about allocations/portfolio. We are looking for growth to catch up; we are 43 and while we are in good shape we missed a lot of time opportunity for compound interest and growth over the years before seeing the light. Hoping to retire early-ish so need to balance risk a bit.

We started maxing out all accounts as of last year (his 401k, my 457, my solo401k, our iras/roth) as well as contribute some to our brokerage. We'd like to keep maxing out accounts for tax benefits/growth, however his company just changed to the options listed below – actively managed and high expense ratios. I initially selected the lowest expense ratio (American Funds Bond Fund 1.02) but now am wondering if this is the best option - maybe there is something with better results. His company matches (mine does not) - if you contribute 1-5% they match 50% of your contribution. The contribution caps out at 2.5%, so if you contribute more than 5%, you still get the 2.5% match.

Any thoughts are greatly appreciated. I still feel like we should max out his account but am open to suggestions about best funds from his options and any ideas to maximize our savings/growth and minimize taxes. We are in the 22% tax bracket although would have been 24% had we not maxed out our tax deferred accounts last year.

American Funds SMALLCAP World R2E RSEBX Growth 1.48
Fidelity Advisor Dividend Growth M FDGTX 1.05
Fidelity Advisor Equity Growth Fund M FAEGX 1.23
Fidelity Advisor Equity Income M FEIRX 1.16
Fidelity Advisor Growth Opportunities M FAGOX 1.30
Fidelity Advisor New Insights M FNITX 1.36
Fidelity Advisor Mid Cap II M FITIX 1.28
Fidelity Advisor Overseas Fund M 1.71
Fidelity Advisor Strategic Div & Inc M FTSDX 1.24
Fidelity Advisor Balanced M FAIGX 1.10
American Funds Bond Fund of Amer R2E RBEBX 1.02
American Funds Interim Bd Fd of Amer R2E REBBX 1.05
American Funds ST Bd Fd of Amer R2E RAAEX 1.17
American Funds US Govt Money Market R2E RBEXX 1.12
American Funds 2010 Trgt Date Retire R2E RBEAX 1.11
American Funds 2015 Trgt Date Retire R2E RBEJX 1.11
American Funds 2020 Trgt Date Retire R2E RBEHX 1.11
American Funds 2025 Trgt Date Retire R2E RBEDX 1.13
American Funds 2030 Trgt Date Retire R2E RBEEX 1.15
American Funds 2035 Trgt Date Retire R2E RBEFX 1.17
American Funds 2040 Trgt Date Retire R2E RBEKX 1.18
American Funds 2045 Trgt Date Retire R2E RBHHX 1.19
American Funds 2050 Trgt Date Retire R2E RBHEX 1.19
American Funds 2055 Trgt Date Retire R2E RBEMX 1.19
American Funds 2060 Trgt Date Retire R2E RBENX 1.20
American Funds 2065 Trgt Date Retire R2E RBEOX 1.25


Our portfolio: (percentages given are percentages of the total portfolio, not of a given account):

Her 457: maxed out yearly/no match
27% Vanguard Institutional Index Fund Plus Shares VIIIX .02
5% Vanguard Total Bond Market Fund VBTIX .04
2% Vanguard Real Estate Fund VGSNX .10
1% TIAA-CREF International Equity Index Fund Institutional Class TCIEX .06

Her Roth: maxed out yearly/split with IRA
19% Vanguard Total Stock Market Index Admiral Shares VTSAX .04%

His Roth: maxed out yearly/split with IRA
2% Vanguard Total Stock Market Index Admiral Shares VTSAX .04%

His Traditional IRA:
14% Vanguard Total International Stock Index Fund Admiral Shares VTIAX .11
20% Vanguard Total Bond Market Fund VBTIX .04

Her Traditional IRA: maxed out yearly/split with IRA
1% Vanguard Total Stock Market Index Admiral Shares VTSAX .04%

His/Her Brokerage: taxable
12% Vanguard Total Stock Market Index Admiral Shares VTSAX .04%

Her Solo401k: maxed out yearly
7% Vanguard Total Stock Market Index Admiral Shares VTSAX .04%

His 401k currently: maxed out yearly
1% American Funds The Bond Fund of America RBEBX 1.02%

Thanks for any help! So grateful, as always.
tashnewbie
Posts: 4283
Joined: Thu Apr 23, 2020 12:44 pm

Re: portfolio high expense ratios

Post by tashnewbie »

It's unfortunate that his 401k offers poor (imo) fund options. At least there's a 2.5% match though.

I agree with your choice of American Funds Bond Fund of Amer R2E RBEBX 1.02 for this account. It seems to be the least bad option. It has tracked VBTLX (Vanguard Total Bond market index fund) fairly well over the past 6 years.

Great job on cleaning up the rest of your account.

FYI, if you ever think you might want to tax loss harvest in the taxable account, use different funds in the IRAs than you use in taxable. For example, you could use VFIAX (Vanguard S&P 500 index fund) (or the equivalent S&P 500 index fund at whatever custodian holds the account).
sycamore
Posts: 6359
Joined: Tue May 08, 2018 12:06 pm

Re: portfolio high expense ratios

Post by sycamore »

Eblana1 wrote: Wed Jul 28, 2021 11:58 am ...Any thoughts are greatly appreciated. I still feel like we should max out his account but am open to suggestions about best funds from his options and any ideas to maximize our savings/growth and minimize taxes. We are in the 22% tax bracket although would have been 24% had we not maxed out our tax deferred accounts last year.
His 401k is only 1% of the portfolio. While it will grow larger from contributions and growth, it won't be such a huge portion that I'd feel it necessary to make changes to the rest of your portfolio. Keep contributing to get the max match for sure. Contributing to the max yearly amount (if you can afford it) is still good because you're getting the tax-deferral benefit. And maybe he won't stay at his employer forever -- eventually you can rollover the 401k to a Trad IRA or another hopefully better 401k.

I think your choice (American Funds Bond Fund RBEBX) is the best of the bunch anyway. As a bond fund, it's a decent choice to get intermediate-term and a mix of government, corporate and MBS bond exposure. In some ways it's a vanilla bond fund, just actively managed. Admittedly it's annoying to have to pay a high ER.

Here's a backtest comparing two portfolios at 66/14/20 US Stock/Intl Stock/Bonds where the only variable was the bond fund, RBEBX versus Vanguard Total Bond Market Fund. Over the past seven years, they ended up with nearly the same return.
Topic Author
Eblana1
Posts: 38
Joined: Sat Aug 01, 2020 7:08 am

Re: portfolio high expense ratios

Post by Eblana1 »

tashnewbie wrote: Wed Jul 28, 2021 12:45 pm It's unfortunate that his 401k offers poor (imo) fund options. At least there's a 2.5% match though.

I agree with your choice of American Funds Bond Fund of Amer R2E RBEBX 1.02 for this account. It seems to be the least bad option. It has tracked VBTLX (Vanguard Total Bond market index fund) fairly well over the past 6 years.

Great job on cleaning up the rest of your account.

FYI, if you ever think you might want to tax loss harvest in the taxable account, use different funds in the IRAs than you use in taxable. For example, you could use VFIAX (Vanguard S&P 500 index fund) (or the equivalent S&P 500 index fund at whatever custodian holds the account).
Thank you for your reply! If I feel like my baseline portfolio is well situated, I planned on moving towards things such as tax loss harvesting. I have read and understand the concept but haven't ventured there yet. I hold everything in Vanguard so it would be the VFIAX. Would that be best in the taxable or the IRAs (or does it not matter which one, only that they are different)? I will read up again - it takes me awhile to fully grasp each new concept. Thanks again!
Topic Author
Eblana1
Posts: 38
Joined: Sat Aug 01, 2020 7:08 am

Re: portfolio high expense ratios

Post by Eblana1 »

sycamore wrote: Wed Jul 28, 2021 12:49 pm
Eblana1 wrote: Wed Jul 28, 2021 11:58 am ...Any thoughts are greatly appreciated. I still feel like we should max out his account but am open to suggestions about best funds from his options and any ideas to maximize our savings/growth and minimize taxes. We are in the 22% tax bracket although would have been 24% had we not maxed out our tax deferred accounts last year.
His 401k is only 1% of the portfolio. While it will grow larger from contributions and growth, it won't be such a huge portion that I'd feel it necessary to make changes to the rest of your portfolio. Keep contributing to get the max match for sure. Contributing to the max yearly amount (if you can afford it) is still good because you're getting the tax-deferral benefit. And maybe he won't stay at his employer forever -- eventually you can rollover the 401k to a Trad IRA or another hopefully better 401k.

I think your choice (American Funds Bond Fund RBEBX) is the best of the bunch anyway. As a bond fund, it's a decent choice to get intermediate-term and a mix of government, corporate and MBS bond exposure. In some ways it's a vanilla bond fund, just actively managed. Admittedly it's annoying to have to pay a high ER.

Here's a backtest comparing two portfolios at 66/14/20 US Stock/Intl Stock/Bonds where the only variable was the bond fund, RBEBX versus Vanguard Total Bond Market Fund. Over the past seven years, they ended up with nearly the same return.

Thank you so much for your feedback. He had actually previously left the job and ended up returning, so we were fortunate to get his money out and put it in his IRA in between. I joked that he will have to do that annually :)

Your input is much appreciated! I guess I worried because it is growing due to the match and I didn't want to lose overall growth opportunities if overweighed in bond funds, but it is pretty low still. We will definitely contribute to the max. Thanks!!
Jack FFR1846
Posts: 18499
Joined: Tue Dec 31, 2013 6:05 am
Location: 26 miles, 385 yards west of Copley Square

Re: portfolio high expense ratios

Post by Jack FFR1846 »

My last job, I was in a bad, high ER (although not as high as yours and with no match) 401k. I chose the absolute lowest ER out of everything without regard to what it was. I also kept in mind that I would not be there forever. I did leave and rolled it all over to my Fidelity IRA. So I really used that 401k as a way to dump money into a tax deferred account.
Bogle: Smart Beta is stupid
tashnewbie
Posts: 4283
Joined: Thu Apr 23, 2020 12:44 pm

Re: portfolio high expense ratios

Post by tashnewbie »

Eblana1 wrote: Wed Jul 28, 2021 1:29 pm Thank you for your reply! If I feel like my baseline portfolio is well situated, I planned on moving towards things such as tax loss harvesting. I have read and understand the concept but haven't ventured there yet. I hold everything in Vanguard so it would be the VFIAX. Would that be best in the taxable or the IRAs (or does it not matter which one, only that they are different)? I will read up again - it takes me awhile to fully grasp each new concept. Thanks again!
You would only change VTSAX to VFIAX in the IRAs, not the taxable account. There would be possible tax consequences in the taxable account, and that's unnecessary in this situation.
Topic Author
Eblana1
Posts: 38
Joined: Sat Aug 01, 2020 7:08 am

Re: portfolio high expense ratios

Post by Eblana1 »

tashnewbie wrote: Wed Jul 28, 2021 1:56 pm
Eblana1 wrote: Wed Jul 28, 2021 1:29 pm Thank you for your reply! If I feel like my baseline portfolio is well situated, I planned on moving towards things such as tax loss harvesting. I have read and understand the concept but haven't ventured there yet. I hold everything in Vanguard so it would be the VFIAX. Would that be best in the taxable or the IRAs (or does it not matter which one, only that they are different)? I will read up again - it takes me awhile to fully grasp each new concept. Thanks again!
You would only change VTSAX to VFIAX in the IRAs, not the taxable account. There would be possible tax consequences in the taxable account, and that's unnecessary in this situation.
Ok thanks. I will definitely re-read and learn more about this but I appreciate the seed being planted!
Topic Author
Eblana1
Posts: 38
Joined: Sat Aug 01, 2020 7:08 am

Re: portfolio high expense ratios

Post by Eblana1 »

Jack FFR1846 wrote: Wed Jul 28, 2021 1:36 pm My last job, I was in a bad, high ER (although not as high as yours and with no match) 401k. I chose the absolute lowest ER out of everything without regard to what it was. I also kept in mind that I would not be there forever. I did leave and rolled it all over to my Fidelity IRA. So I really used that 401k as a way to dump money into a tax deferred account.
It is frustrating to not have any great options but I agree it is still worth getting what we can out of it. I guess I had the same approach but of course doubted myself. Thanks!
User avatar
ruralavalon
Posts: 26351
Joined: Sat Feb 02, 2008 9:29 am
Location: Illinois

Re: portfolio high expense ratios

Post by ruralavalon »

Deleted.
Last edited by ruralavalon on Wed Jul 28, 2021 3:13 pm, edited 1 time in total.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link: Bogleheads® investment philosophy
billfromct
Posts: 2057
Joined: Tue Dec 03, 2013 8:05 am

Re: portfolio high expense ratios

Post by billfromct »

When you say, “His/Her Roth IRA Maxed out yearly/split with IRA”.

Are you saying you contribute to a tax deductible IRA?

If MFJ & you have a work retirement plan (401k, etc.), the ability to contribute to a tax deductible IRA starts to phase out when your modified adjusted gross income (MAGI) hits $105k & totally phases out when MAGI hits $125k.

I believe the 22% Federal tax bracket (2021) is between about $81k-$172k of taxable income, so from the information you provided, it is difficult to estimate your MAGI.

Something to be aware of.

bill
Post Reply