Poor choices in 401(K)

[okayplayer]

My wife recently switched employers and unfortunately has some pretty poor choices of funds to invest in (at first glance):

Pretty bad expense ratios compared to both of our current 401(K)'s which have Vanguard low cost index fund options.

She is 30 and plans to work until 60. We are pretty aggressive with our investment choices at this point (100% equity, 30% of which is international) because we are both risk-tolerant and have many years of capital appreciation ahead of us.

I was thinking:

35% NMSAX (small cap)

35% RFNGX (large cap)

15% RWIGX (international)

15% RNPEX (international)

 

This puts us at an overall expense ratio of 0.45. Not terrible, but with her last employer her expense ratio was 0.10 with Vanguard Total Stock Market and Total International Index Funds.

 

Thanks for your help in advance.

[PhysicianOnFIRE]

How does that fit in with your overall asset allocation across your combined portfolio?

I prefer to keep it simple; I see no need for 4 funds in this one account. I would go with the lowest ER fund that fits into your IPS / asset allocation and put 100% of the money in this 401(k) into it. Make adjustments elsewhere to maintain your desired allocation.

If you're here, you've probably read WCI's post on a crummy 401(k). If not, check it out.

Bummer she lost access to the Vanguard funds. I'm lucky to have institutional versions of several popular Vanguard funds in my tax-deferred accounts.

Best,

-PoF

[jfoxcpacfp]

You have some good choices here. I would have liked to have a good REIT fund, but they don't have one at this time, apparently. Expense ratios are important but I believe they are emphasized so much that other qualities are not considered, such as the management team. I would choose ODIYX, for example, but not a big deal. I believe you're a bit overloaded in international funds. Note that RFNGX has 10% international, also. At the same time RNPEX is only 43% int'l, so that balances out, I guess. Glad you're staying away from the spam (target-date) funds.

I respectfully disagree with PoF that you shouldn't diversify her portfolio while making adjustments elsewhere. That, to me, would be more complicated as you can set your allocation in the 401k and forget it. My choices would be a 5-way split among LC Value, SC Value, LC Growth, SC Growth, and Int'l. Also, do not overlook the importance of periodic rebalancing back to original allocation (my preference is annually).

[PNWskindoc]

Hi All,

I'm about to start my first job post-residency in a few weeks and I just received our benefits package. To my dismay, the investment options are dismal...The LOWEST expense ratio (I kid you not) is 1.14% which is for a bond fund. Everything else is in the 1.18 - 1.9% range. I'm actually quite surprised by this as he seems to be very financially savvy. As someone just starting off and hoping to make partner at the practice, I don't want to ruffle too many feathers and make too many demands. What would people suggest I do? Just suck it up and keep quiet or do you think I should say something to the practice owner? Also, are there any resources out there that I can present to the practice in the event that he is open to having a discussion? Thanks everyone

[Dicast]

PNWskindoc wrote:

Hi All,

I’m about to start my first job post-residency in a few weeks and I just received our benefits package. To my dismay, the investment options are dismal…The LOWEST expense ratio (I kid you not) is 1.14% which is for a bond fund. Everything else is in the 1.18 – 1.9% range. I’m actually quite surprised by this as he seems to be very financially savvy. As someone just starting off and hoping to make partner at the practice, I don’t want to ruffle too many feathers and make too many demands. What would people suggest I do? Just suck it up and keep quiet or do you think I should say something to the practice owner? Also, are there any resources out there that I can present to the practice in the event that he is open to having a discussion? Thanks everyone

Click to expand...

I prefer a blog post and the chart that comes with it from Vanguard.  I've bookmarked it on my phone for similar discussions.  The dynamics of being the new guy and also wanting the group to change plans may be a bit difficult.  Every situation is personal and unique.  The head of the group probably wants to make lots of money in investments just as much as you do but may have a long term relationship with his financial advisor which predates you by many years. In a situation where 30 years from now these fees could be costing you over 25% of your net worth I'd have a difficult time keeping quiet.  Stick to the facts, don't make it emotional or personal.  If your practice is small you might need to be prepared to help direct them to the next provider if they are willing to change.

[litovskyassetmanagement]

PNWskindoc wrote:

Hi All,

I’m about to start my first job post-residency in a few weeks and I just received our benefits package. To my dismay, the investment options are dismal…The LOWEST expense ratio (I kid you not) is 1.14% which is for a bond fund. Everything else is in the 1.18 – 1.9% range. I’m actually quite surprised by this as he seems to be very financially savvy. As someone just starting off and hoping to make partner at the practice, I don’t want to ruffle too many feathers and make too many demands. What would people suggest I do? Just suck it up and keep quiet or do you think I should say something to the practice owner? Also, are there any resources out there that I can present to the practice in the event that he is open to having a discussion? Thanks everyone

Click to expand...

If you are a partner-track or a partner, yes, absolutely.  Sometimes the practice owner is not very knowledgeable (even though one might seem savvy).  Basically, start with questions about the plan, explain that high cost funds are costing him (and other partners) an arm and a leg for no added benefit, send him some articles about asset-based fees and how to run the best plan cost-effectively (it might turn out that admin cost for the plan is zero because the revenue sharing is paying for it, but that's not really zero because it comes out of your pockets anyway and then some).  Maybe he does not even know what he's paying, so bringing this to his attention is a good idea. You would be surprised to find out that many (if not most) small practice plan owners don't know what their fees are. Finally, it helps getting a third party (someone in a fiduciary capacity) to review your plan and provide recommendations on how to improve the plan and eliminate the extra unnecessary cost.  Here's some background reading:

http://www.dentaltown.com/Dentaltown/Blogs.aspx?action=VIEWPOST&b=143&bp=756

http://www.dentaltown.com/Dentaltown/Blogs.aspx?action=VIEWPOST&b=143&bp=3376

If the above two articles don't do the trick, then the practice owner is not very savvy at all because he's probably the one paying the biggest chunk of the fees.

 

[Docbeans]

Yes, yes and yes to all that has been said above! People who appear savvy may be far from it. And fees are so well hidden that few people know anything about them. I tried to convince my partners that some retirement funds at a large insurance company was costing them heavily (and spelled it all out for them). The result? Nothing. They still have not pulled out their funds from there. On the other hand, when setting up the group 401k with a very low-cost provider, there were all sorts of questions and doubts because the fees were not pulled out of assets (invisible fees) but charged upfront and therefore visible.

[PNWskindoc]

Thank you all for your comments. If for whatever reason we don't change our fund options, any recommendations which ones to pick? Just looking at these fund options again makes me cringe...

I bolded the ones that I think I'll probably end up choosing from but would appreciate your input. Thanks!

International

American Funds New Perspective R1: 1.56%

Delaware Emerging Markets R: 1.96%

Oppenheimer International Diversified R: 1.54%

Templeton Foreign R (large value): 1.44%

Hartford International Opportunities (foreign large blend): 1.46%

 

Small cap

Franklin Small Cap Value R: 1.41%

Royce Total Return R: 1.8%

Columbia Mid Cap Value R: 1.42%

Oppenheimer Main Street Mid Cap R: 1.36%

Hartford MidCap R3: 1.48%

Large Cap

American Funds (Large blend): 1.4%

Franklin Growth R (Large growth): 1.18%

Neuberger Berman Socially Responsive: 1.3%

RidgeWorth Large Cap Value: 1.37%

Asset allocation/balanced

American Funds (Moderate allocation): 1.39%

BlackRock Global Allocation: 1.49%

Frankling (Conservative allocation): 0.97%

Goldman Sachs Satellite (World Allocation): 1.75%

JPMorgan Smartretirement 2020: 1.40%

JPMorgan Smartretirement 2025: 1.44%

JPMorgan Smartretirement 2030: 1.45%

JPMorgan Smartretirement 2035: 1.50%

JPMorgan Smartretirement 2040: 1.53%

JPMorgan Smartretirement 2045: 1.59%

JPMorgan Smartretirement 2050: 1.65%

JPMorgan Smartretirement 2055: 1.73%

Bonds

Delaware Diversified (intermediate-term): 1.15%

Frankling Total Return (intermediate-term): 1.18%

Pioneer Strategic income (multi-sector bond): 1.34%

Templeton Global bond: 1.14%