401K advice

Comments

• msf

  October 2015

  Here's a good thread on M* from someone asking a similar question - new investor, a bit younger (age 25, not 30), lots of the same funds (or similar funds, or funds from the same families).
  
  http://discuss.morningstar.com/NewSocialize/forums/t/341193.aspx
  
  It's worth reading because no one who responded suggested "pick this fund and this one". Rather, they ask additional questions of the investor, discuss IRAs, matching, costs, etc. Easier for me to point you there than repeat a lot of good feedback.
  
  Unlike the funds there (which were 'A' shares, apparently load-waived), you are being offered 'R' shares, which are load shares, period. Those funds add an extra 0.50% annually to the fees they take out of your investment.
  
  Often (especially for small employers) this is a way for the employer to offer the plan without paying any fees to the administrator for running it. It is the employees who pay for the plan out of their investments (the 0.50% being assessed). That's a good reason to invest in the plan only up to the matching amount (if any), then an IRA, then maybe looking at more in the plan.
  
  Of the funds I recognize, there are some decent ones, but few that jump out at me.
• hank

  October 2015 edited October 2015

  Hi proman:
  
  Not familiar with AC's current lineup - though I did once invest with them and found them OK. Keep in mind that funds like the one you own (Aggressive is the tip-off here) are typically very volatile. Losses of 15-25% in a year followed by similarily large gains are not uncommon. Comes with the territory.
  
  My sense is you'd be more at ease in some type of moderate allocation fund or a target date fund based on anticipated retirement year. And shucks ... There's nothing on your list along that line that I recognize or could recommend.
  
  The one (more aggressive) choice that leaps to mind is T.Rowe Price's Growth Stock Fund (PRGFX). They're a great client-friendly house. And Lipper gives the fund its highest ratings. Another I've owned and liked is Oppenheimer's Global Growth (OPPAX). It also scores well at Lipper. R-Class would allow you to own Class A equivalent at Oppenheimer without paying the customary (near 5%) load. But be wary of many of Oppenheimer's other funds. You can lose a lot of money fast in some of them. And their allocation funds actually tack-on an extra "allocation fee", making them overly costly to own.
  
  Please keep in mind that the two I mentioned specifically (at Price and Oppenheimer) are aggressive funds designed for long-term investors able to tolerate large swings in NAV.
• districtwanderer

  October 2015

  Given the quite limited menu (only PRGFX stands out as a good contender), perhaps consider contributing enough to receive any company match and then invest additional funds, if you can, in a Roth IRA, with Vanguard, Schwab, or Fidelity, where you would have a plethora of better options.
• MikeM

  October 2015 edited October 2015

  Hi proman. The 3 main drivers to winning the retirement savings game are to start saving early in your career, save as much as you can (10% of your income minimum) and have a diversified portfolio according to risk tolerance. I wouldn't agonize over fund choice too much. Fund choice IMO is a very distant contributor to the end-game compared to these other factors.
  
  It would be my opinion that one of those Target Date funds would give you the allocation base you need. Use the retirement year as a guide, but make your decision based more on the funds stock/bond allocation. Take a look at how much these funds lost in 2008. Are you comfortable with short term loss knowing you don't need this money for another 30+ years? For example I see that the 2045 retirement fund, AOOIX, is about 78% stocks. It had a 1 year, 2008 loss of 33%. At 30 years old that might be a good choice for you, but you have to decide. If the fund is riskier then you can handle (based on 1 year loss potential) you may pull out at the very wrong time. If it doesn't have enough stock or risk at your age then you may be leaving a lot of money on the table 30 years from now.
  
  Anyway, start with your allocation and then pick a few funds that get you to that allocation. And don't overlook the index funds when allotting, especially in the large cap area. And remember one fund like a Target Date fund might be all you need or at least be the core of your portfolio.
  
  Save as much as you can and as soon as you can. That's the big deal. Good luck to you.
  
  edit: oops, in my original post I used data from AAARX, the strategic fund. I changed the ticker to be AOOIX, the 2045 target date fund.
  
  
• msf

  October 2015

  The one (more aggressive) choice that leaps to mind is T.Rowe Price's Growth Stock Fund (PRGFX) ... R-Class would allow you to own Class A equivalent at Oppenheimer without paying the customary (near 5%) load.

  I'll try again to describe loads.
  
  Would you be as comfortable suggesting the RRGSX share class of TRP's Growth Stock Fund? That's what is being offered. These are R shares, with an ER nearly double that of PRGFX (an extra 0.50%, to be precise). Oppenheimer R shares likewise add 0.50% and cost more than their load-waived A shares found in some other 401k plans (and also NTF at several discount brokerages).
  
  This extra 0.50% is taken out year after year, even if one switches funds within the 401k, since the all funds assess this fee (or something close to it).
  
  That's a load. It goes into the pocket of the plan administrator. The SEC calls it a load, FINRA calls it a load. Over a decade, it's going to cost as much as a front end load.
  
  That S&P Mid cap index fund? Here's its financial statement and its M* profile. J class management fee is just 0.07%. But oh, those administrative fees (think 12b-1), they add 0.63%, bringing the total ER up to 0.70. That gravy goes to the plan administrator.
  
  Briefly on the investment options - if you don't like the actively managed options, the index funds cover the major areas, large cap (S&P 500 index), mid cap (S&P Mid Cap index), small cap (Russell Small Cap index), foreign (International index). They're cheaper than the other offerings (even at 0.7% or so ER), and should beat lackluster funds.
  
  If you want to add some bond exposure and actively managed allocations, several people here have written positively about Blackrock Global Allocation (MRLOX), notably BobC, but also Bee, VintageFreak, myself, and others.
  
  Yes folks, posts on the internet live forever
• hank

  October 2015 edited October 2015

  You're correct (again) msf.
  
  I had no idea Price charged more for R-Class shares. No, I would probably not recommend any fund that did this. (Unless that R-Class designation was designed to fall-off over time)
  
  Nor did I realize Oppenheimer charged more for R shares.
  
  Any chance those Oppenheimer R-Shares would convert to straight A shares, carrying a lower ER over time? Linked is Oppenheimer's blurb on share classes fwiw.
  
  https://www.oppenheimerfunds.com/investors/article/sales-charges-and-breakpoints
• msf

  October 2015

  I doubt R shares would ever convert. They are more like C shares that never convert than like B shares (with high but declining deferred sales charges).
  
  The purpose of the higher fees is to pay servicing expenses, not sales expenses, so you would expect them to persist. A 401k plan administrator has to service all its investors (just like a third party brokerage selling funds), but also has additional regulatory filings and procedures to follow. An administrator will charge to cover its costs (and make some profit).
  
  In my mind, the two questions are: what's a reasonable charge, and who should pay it (employer or employee)?
  
  Consider that brokerages like Fidelity and Schwab charge funds 40 basis points for shelf space (NTF funds). By that measure (given the additional work required of 401k plans), the 50 basis points doesn't seem out of line. But I would argue that the brokerage NTF fees are themselves excessive, and that most of the regulatory stuff done by plan administrators is boilerplate/automated. By that measure, the 50 basis points is too high, and that is what I think.
  
  Who should pay is not as obvious as: well, of course the employer should pay.
  
  Employers, especially small companies, have limited budgets, and allocate so many dollars per employee. Those dollars can go toward salary, toward vacation time, toward desk space, toward benefits. Demand that they pay for the plan and perhaps you'll get a smaller match (if any).
  
  Small plans cost more per employee (fixed costs amortized over fewer people). That's why large companies almost always pay for the plans, while small companies shift costs. They may use annuities (where the administrator gets paid out of the annuity fees) or R class shares as here, or ...
  
  IMHO this isn't "evil", but it should be clearly disclosed and should be a reasonable amount.
• hank

  October 2015 edited October 2015

  
  @ msf,
  
  Wow - Just when I thought fund fees were becoming more reasonable.
  
  At work years ago we first had Templeton Class A in our 403-B plan (4.17% front load) and than later they added T. Rowe Price no-load, which I switched to.
  
  Guess I was "spoiled" by that experience.
  
  I hope the OP is able to identify some options that won't gouge him on cost. If not, the Roth idea someone suggested might be a better alternative.
• proman

  October 2015

  Thank you all for your advice!
  
  I'm learning a lot and enjoying every second of it. I thought I was ok with an aggressive fund and am reassured of that when I was reminded that it's a long term plan. I obviously had a late start in my retirement investing and that's why I'm now putting in 20% of my income(plus the tax benefit). My company match is five percent so the IRA idea after the 5% is looking like a great idea. I just liked the convenience of the automatic withdrawal.
  
  Another question for everyone. Where can I go to learn more about investing without the funds for the college experience?
• InformalEconomist

  October 2015

  @proman: Morningstar used to have, perhaps still has somewhere, basic articles on investing. On that site as well, you may post your options and talk things over under Discuss/Portfolio Design (and on several other fora as well).
  
  For a basic membership (originally free, now may cost a few $$ per year), you can post "watch" portfolios and see how they fare over time.
  
  Mutual Funds for Dummies may also be available from your town library.
• little5bee

  October 2015

  @proman
  
  I've always enjoyed going to the World Money Show (different locations throughout the country)...they also have free webcasts you can register for, if you can't attend in person. Many great speakers, workshops and exhibits (I always came home with new ideas and lots of freebies! )
  
  Schwab also has some free webinars and in person seminars...might be worth it to open a small account there, so you can get access to that.