As regular readers of this blog know, my wife recently started a new position in a Bay Area tech company. Yesterday it was time to sign up for the new 401K plan. Options, options, options.
My wife's new 401k plan is actually not bad. It offers both a traditional 401k plan and a ROTH 401k option. We chose the traditional option, for a variety of reasons which I will go into at another time.
The plan offers about 15 fund options including, surprisingly, two index options: an S&P index fund and a midcap index fund. The plan even offers a real estate fund, and several international fund options - unfortunately, no index options are available for those two sectors. The only two bond fund options offered as part of the 401k have ridiculously high expense ratios of around 0.85%. To which I can only say: are you kidding me?! For a bond fund? In addition, over the past 12 months, both bond fund offerings substantially under-performed Vangaurd's bond index fund (VBMFX) in which we invest seperately. More cost for lower performance. Don't you just love actively managed funds?
Here is the asset allocation we selected:
Schwab S&P 500 Index: 30%
Dreyfus Mid-Cap Index: 35%
Harbor International Institutional: 25%
Cohen & Steers Realty Shares: 10%
You may notice that this is a fairly aggressive allocation, however I would like to point out a number of facts:
1. We manage our entire portfolio as a single unit, not attempting to optimize each individual account seperately.
2. The portfolio we selected, while aggressive, is well diversified with a sizeable international component, as well as a real estate component that has a lower correlation with the overall market.
3. Since we are both in our mid-thirties, our time horizon for retirement savings is a long one. We can afford to ride out eventual bear markets, and wait for the long term performance advantage of the stock market to kick-in. So, for now our retirment investments are mostly in highly diversified stock funds.
1 comment:
It's almost impossible for someone who's not a(former)Insider to have any idea what's going on "behind the 401K curtain" so here's some help.
I noticed your fund line up and thought I would chime in.
The Cohen & Steers Realty Shares fund fails to report the full amount of expenses levied against fund assets in their financial statements. The amount spent in brokerage commissions is not reported in the annual report but in a separate filing with the SEC.
Why on earth would this expense not be listed in the financials given to fund shareholders? Mostly because it's not required, but it simply allows the reported expense ratio to be lower than the actual amount.
A quick adjustment adding the brokerage commissions back to the "Statement of Operations" paints a different picture.
The actual expenses are almost $31 million not $29 Million. Who cares you say? This is just a drop in the bucket.
There are many, many funds where the brokerage commissions paid exceed the annual management fee.
Think I'm kidding! Try to find it yourself. About 40% of the funds don't even report it in their Statement of Additional Information (SAI) filings. Amazing!
FYI the supporting docs are on my blog the401Kinsider.blogspot.com
Post a Comment