Cut losses and move on to something better?

[kv968]

Th
Pre-tax 401K is broken out into the following funds: ARWAX, ODMAX, PAUAX, and THVRX
Other funds are : CGMFX, CGMRX, RYOHX, and RYVPX

Each month, $600 goes in the work 401K, and the wife and I contribute another $400 to the other mutual funds.

I will check and see what is available through the work 401K and post those funds later.

Feel free to chime in and offer suggestions or critiques as you see fit.

Thx.

When you check the fees, make sure to look and see if the funds in the 401k are charging a front-end load. All but RYVPX are loaded funds of 5.75%-5.5%. The loads may be waived since they're in a 401k but I'd definitely make sure of that.

Otherwise, just as an example, if all of the funds were charging 5.5%, out of the $600 you put in each month, only $567 of that is actually being invested.

I know there's probably not much you can do about the choices in the 401k but if there's no employer match it may be better to invest elsewhere or at least limit your 401k contributions.

[Petunia 100]

You have a 401k and a taxable account, but no Roths? I suggest you consider funding Roths before funding taxable.

[elessar78]

Some telling numbers in your fund.

ARWAX fees:
Net Expense Ratio: 1.11% really high

12b1 fee: .25% this is a fee charged for the advertising and marketing and operational costs of the fund. A little ridiculous that the investor should pay for this in a separate line item.

Front end sales load: 5.57% you pay this to simply buy into or stay in the fund. Off the top they are taking 5.75% for a fund that has returned 4.21% in a 5-year average.

10 Yr Expense Projection: $1,850 per $10,000 invested. So nearly 20%! of your initial capital is siphoned off to pay the fund manager, not the investor.

ODMAX fees:

This is a fund that seeks to invest in emerging markets. Emerging markets are tricky because they can be in countries that are very different than the US. Political instability, corruption, etc. But they are also the areas that can see large growth in short periods of time OR massive sudden collapses. Something to keep in mind.

Prospectus Net Expense Ratio: 1.36%
Max 12b1 Fee: 0.25%
Max Front End Sales Load: 5.75%
10 Yr Expense Projection*: 2,126

Compare this to a Vanguard Total Stock Market Fund
Prospectus Net Expense Ratio: 0.06%
Prospectus Gross Expense Ratio: 0.06%
Max 12b1 Fee: N/A
Max Front End Sales Load: N/A
10 Yr Expense Projection*: $77

I don't put too much stock in the 10 year expense projections but $77 versus $2,126 or $1,850 for ten years to manage my money is a no brainer. The old adage, it's not how much you make, it's how much you keep applies here.

Also, I assume because you have several funds that there's a lot of redundancy—you own the same stocks or bonds in multiple funds. In a backdoor way, mutual funds attempt to reduce risk by diversifying but because you own the same stocks in several funds you're actually less diversified.

If you're a numbers guy, I recommend the book Unconventional Success by David Swensen. Swensen manages Yale University's endowment and he's been very successful and he wrote this for the average investor—what he thinks, from his vast experience, should do to successfully save for retirement.

If you're not a numbers guy, I recommend Enough by John Bogle. He explains in lay man's terms what he believes the best approach to saving for retirement.

[humandraydel]

Sell and buy VTI (Vanguard Total Stock Market Index).

My only critique is....why haven't you sold and bought VTI (and other Vanguard funds/ETFs) yet?

[woodie96]

The VTI does sound appealing, however, with the market at the high level now i don't see it staying at this level very long in the near future.
To dump 20K in VTI now with the DJIA at 14,000 wouldn't that be the equivalent of buying high and selling low.

With the uncertainty looming over the economy in the next few months, I don't see it staying that high. Maybe it might be worth it to buy in now at the minimum and do some DCA over the next year or so.

JMHO

KV968 - The 401K at work is a 100% match up to 4% of my income. I contribute 11% and the company kicks in their 4%. I'm not sure if the "group" we go through had the load fees waived or not, I will have to check that tomorrow at work.

Elessar - When looking at the fees and expenses, I look at the morningstar reviews, and although the fee may be 1.1% or so, Morningstar compares the asset class and category and says the fees are low or average for the type and class. Fees for global or worldwide emerging markets will be higher than something more "traditional" I would think.

Or is my thinking backwards?

[elessar78]

Elessar - When looking at the fees and expenses, I look at the morningstar reviews, and although the fee may be 1.1% or so, Morningstar compares the asset class and category and says the fees are low or average for the type and class. Fees for global or worldwide emerging markets will be higher than something more "traditional" I would think.

Or is my thinking backwards?

Your question is whether or not fees are relative. Certainly, but the point is not to overpay. I don't subscribe to Morningstar so I don't have access to all the funds but for example, the fee for my International Index Fund is .22% and it goes onto say that: "This is 83% lower than the average expense ratio of funds with similar holdings.*" (based on Morningstar reports)

[elessar78]

The VTI does sound appealing, however, with the market at the high level now i don't see it staying at this level very long in the near future.
To dump 20K in VTI now with the DJIA at 14,000 wouldn't that be the equivalent of buying high and selling low.

With the uncertainty looming over the economy in the next few months, I don't see it staying that high. Maybe it might be worth it to buy in now at the minimum and do some DCA over the next year or so.

JMHO

You're absolutely right. Funny enough I wrestled with that same question since I just changed jobs and had to rollover my 401k into my traditional IRA and it was a relatively large lump sum.

By every reasonable measure and old adage says to wait. But then you get in the realm of market timing and that's just a no-no. The likelihood is that the market will go down but what if this is the genesis of the greatest bull market in history? People will say the know, but no one really does.

Over the long-term one can offset these ups and downs via dollar cost averaging: regardless of what the market is doing, the investor is buying at regular intervals (weekly, monthly, etc).

I went ahead and bought in. I thought about it A LOT and I knew my limitations and chose just to K.I.S.S. In 30-40 years, I'll do a regression analysis of what would've happend if I bought a week before or at the time that I did. It'll be fun.

Further, you're left with the question of when to buy in? What number do you buy in at? What if it's close to that number? How long do you give yourself to hit the number?

[woodie96]

Through work, the 401K I have currently has 19 funds available. I am currently in 4 of them:
ARWAX - Target Retirement Fund 2025 Blended - 5.75% Sales Fee, 1.11% Expense Ratio
ODMAX - Diversified Emerging Markets Stocks - 5.75% Sales Fee, 1.36% Expense Ratio
PAUAX - World Allocation Blended - 5.5% Sales Fee, 1.63% Expense Ratio
THVRX - Foreign Large Growth Stocks - 0 Sales Fee, 1.25% Expense Ratio
My 600 a month contribution is split equally with 25% going to each, each month. I was incorrect earlier, work puts in 4%, I put in 9% of my check.

The other 15 available that also fit my planned retirement date are:
ARYAX - Target Retirement Fund 2035 Blended - 5.75% Sales Fee, 1.16% Expense Ratio
MDLOX - World Allocation Blended - 5.25% Sales, 1.16% Expense Ratio
WASYX - World Allocation Blended - 0 Sales Fee, .97% Expense Ratio
OARBX - Moderate Allocation Blended - 0 Sales Fee, 1.09% Expense Ratio
TWEAX - Large Value Stocks - 5.75% Sales Fee, 1.2% Expense Ratio
FKGRX - Large Growth Stocks - 5.75% Sales Fee, .93% Expense Ratio
LACAX - Mid-Cap Growth Stocks - 5.75% Sales Fee, 1.11% Expense Ratio
EAASX - Mid Cap Growth Stocks - 5.75% Sales Fee, 1.25% Expense Ratio
IYSYX - Small Value Stocks - 0 Sales Feem 1.62% Expense Ratio
AAAAX - Multi-Alternative Stocks - 5.75% Sales Fee, 1.91% Expense Ratio
DPDFX - Intermediate Term Bonds - 4.5% Sales Fee, .92% Expense Ratio
PTTAX - Intermediate Term Bonds - 3.75% Sales Fee, .85% Expense Ratio
EVBLX - Bank Loan Bonds - 2.25% Sales Fee, 1.01% Expense Ratio
PRTNX - Inflation-Protected Bonds - 3.75% Sales Fee, .85% Expense Ratio
TPINX - World Bonds - 4.25% Sales Fee, .90% Expense Ratio

The ARWAX and ARYAX Target Retirement Date Funds are funds containing other funds. With around 15 or 16 individual funds making up those funds. I'm thinking I would do just as good and lower my fees if I tried to keep roughly the same asset allocation and moved away from those. Although they are a fix it and forget it type fund and their 45% domestic stock is split up between numerous categories.

Comparing the PAUAX that I am in now, with the other World Allocation Blended funds (MDLOX, WASYX), it would seem that I'm giving away 5.5% Sales Fee and .66 Expense Ratio if I switched to WASYX. Comparing apples to apples, eight years back since the inception of PAUAX 10/31/2005 the chart shows WASYX up approximately 65%, where PAUAX may be 3% up. Now past history is no guarantee, but considering the historical data, and the fact that I'm giving away 6.16%, it actually appears to me that the WASYX beat my previous choice by over 70% since October 2005.

Now to try to sort out some of the other mess. Thanks all for the input and assistance.

[elessar78]

The problem with work-based 401k plans is for some strange reason they don't seem to be administered by the "money minds" of the company. No offense to HR people, but they don't really seem to grasp the fundamentals of this stuff. The really rich guys in the company, have their own advisers so they are insulated from this problem.

As I and my wife have experienced with our own 401Ks through work, we are beholden to a set of funds that are tragically expensive to own. But how do you get around it when the company is matching?

The common belief is contribute up to the match and then go outside the company for the rest.

If you have a voice in your company, point out that if they are matching 4% then they're not even covering the load/buy-in fee (the math isn't spot on because you pay in year one, but you get the point). They are basically paying the management company and not helping secure their employees retirement years.

If the investor moves his money around a lot, he's constantly paying that sales fee.

[woodie96]

I never quite looked at it like that.

However, I don't think the HR department is going to do anything about it. I'm not sure I get the math.

When I look at the math, say for example I do the exact 4% match with my company.

On a hypothetical 5K a month salary. That would mean I put in 200 and the company matches that with 200. When we send that 400 off to XYZ fund, and they take 6% in fees. They taks 24 bucks a month in fees.

In my redneckish way at looking at it, generally, the company's 200 doubled my money, and the XYZ fund took 6% of their money, leaving me with a 94% increase over my match.

[woodie96]

Although, if they didn't have the 6% fee, those 24 bucks would be mine also.

[humandraydel]

Although, if they didn't have the 6% fee, those 24 bucks would be mine also.

You've got the math correct. A terrible 401k with a match is still typically better than no match. That being said, you honestly do have a terrible 401k. I would STRONGLY consider buying the funds with no load. If you also invest in a Roth or Traditional IRA you should think of entire portfolio. It looks like you have 2 options as far as your no load funds - small cap stocks or international stocks. So buy mostly those with your 401k, and put your large cap stocks (VTI) in a Roth or Traditional IRA.

[elessar78]

I never quite looked at it like that.

However, I don't think the HR department is going to do anything about it. I'm not sure I get the math.

When I look at the math, say for example I do the exact 4% match with my company.

On a hypothetical 5K a month salary. That would mean I put in 200 and the company matches that with 200. When we send that 400 off to XYZ fund, and they take 6% in fees. They taks 24 bucks a month in fees.

In my redneckish way at looking at it, generally, the company's 200 doubled my money, and the XYZ fund took 6% of their money, leaving me with a 94% increase over my match.

Two other ways to look at it, say you sold your current position and bought a fund with 5% front load with 10,000, then they would've just taken $500 of your money for doing nothing.

The $24 they take out, if you had that $24 and invested monthly for 20 years it would turn into $11,000+ at a decent 6% return annually. So they took $11,000+ out of your pocket.

Conversely, if your net asset fee was a mere flat rate of .06% in the same 20 year time frame you'd have only LOST over $100 in potential growth income. So the management company has to make dynamite returns to compensate for that upfront fee.

[woodie96]

Well, today was almost break even day for the CGMFX so I decided to cash in 20K of it and use that 20K to fund a new Roth IRA for the wife and I for this year and next year.
I think I will get a Roth into a Targeted fund 2025 or 2030 date, and then use the other half to go a little more risk/reward in a separate ROTH.
Then after the first of the year, do some DCA in each one of them to have them fully funded next year, from the remainder of the 20K.

Thanks humandraydel for pointing me towards the Vanguard family of funds. Their fees and expenses are much lower. They have a ton to choose from...
Thanks to elessar also for driving the point home about the expenses and fees.

You guys are da best...

[elessar78]

Glad to hear that I could help and also glad to hear you're going with Vanguard. I'm very happy with them.

Since you mentioned Target Date funds. I myself started a new job and our 401k is with Vanguard and I started a Roth IRA. Something to note about Vanguard's target funds. The 2040 and 2045 funds ("TDF") have a very out of whack asset allocation at 90 stocks / 10 bonds. Much more aggressive than Vanguard's founder ever advised (his advice is to allocate about your age in bonds, so if you're 35, you'd have about 35% on the bond side).

Vanguard put out a "paper" on their thoughts on the subject. Basically they said that younger investors (those aiming to retire in 30-35 years have more time to recover if the market should do badly for stretches. Additionally, the added risk/aggressiveness is justified because of rising costs of old age and longer life expectancies.

My current Traditional IRA (with Vanguard) is set at about 75/25, despite being in my mid-30s. (I'm using the formula 110-age, to calculate). For my ROTH 401k, I'm going with the 2030 TDF that's set at 80/20. I'm not 100% sure of this aggressive approach, but I feel that I have an iron stomach for market swings, but then again I've only been contributing since my 20s so my portfolio isn't huge enough to cause consternation if the market drops, say, 30% in a day.

FWIW, 2025 is 70/30 and 2030, as I mentioned, is 80/20. Not sure how old you are and what age you think you'll retire.

Here's something else I found on the subject, I can't verify the source so take it on face value:

http://theinquiringinvestor.com/2012/06/03/how-often-do-vanguard-target-date-funds-rebalance/