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Advice needed/Expense ratio dilema
Old 06-28-2010, 09:02 PM   #1
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Advice needed/Expense ratio dilema

Long story short, I am trying to keep my expense ratios as low as possible. In my Companys 401K I am invested in the following:
VG Total stock market index @ .02% ER
VG Total Bond Index Institutional @ .07 ER
VG STAR International Index @ .32 ER

Very pleased with these low expense ratio's.

My wifes Company does not offer any VG funds and the funds they do offer have very high expense ratios. The only two I am considering are the Blackrock Lifepath fund (Target retirement fund) with an expense ratio of .65 expense ratio or an S&P Index fund at .25 expense ratio.

I basically have two options in her account. #1 Buy the Blackrock Lifepath with .65 ER OR #2 Buy the S&P with .25 ER.

Now, my questions...If I go with Option #2, I gain a lower ER, but, in order to maintain the AA in our combined investing strategy, I would have to reduce the contribution I am making in my account on the VG Total Stock index fund as a large % of equities would be bought through her account with the S&P index fund at .25 ER. I compared the VG Tot Stock fund to the S&P and the Tot Stock fund perfomed better by about $1,000 better on an investment of 10K.

Should I expose myself to the S&P fund and less VG Tot stock mkt exposure (Lower ER @.25) OR keep her in the Blackrock lifepath fund (higher ER @.65) but this allows me to keep investing more in the VG Tot stock fund.

I guess bottem line is this: Would you buy the S&P index over the VG Tot stock fund, get a little less performance but a lower ER or just suck it up and buy the Blackrock at .65 ER?

Thanks
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Old 06-28-2010, 10:51 PM   #2
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Don't over think this. The best option in your wifes plan is the S&P500 fund so use it. The fact that the S&P500 index lagged the VG total market is past performance. Ignore it.

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Old 06-28-2010, 11:46 PM   #3
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Quote:
Originally Posted by tsturbo View Post
Long story short, I am trying to keep my expense ratios as low as possible.
Definite paralysis by analysis. If this is the biggest problem you have in your 401(k)s and your asset allocation...

Quote:
Originally Posted by tsturbo View Post
I compared the VG Tot Stock fund to the S&P and the Tot Stock fund perfomed better by about $1,000 better on an investment of 10K.
You don't mention the length of this period, but recency and volatility/risk differences may make the comparison irrelevant.

About the only relevant performance period would be the length of time that your spouse is going to keep contributing to it, and just for the match. As soon as she's no longer able to contribute to that 401(k) then you'd presumably roll it over to a Vanguard IRA and go for their cheaper expense ratios. So you may not have to put up with this for too many more years.

Quote:
Originally Posted by tsturbo View Post
I guess bottem line is this: Would you buy the S&P index over the VG Tot stock fund, get a little less performance but a lower ER or just suck it up and buy the Blackrock at .65 ER?
Unless you can control the performance of the fund, then you're gonna have to go with the aspect of the 401(k) that you can control-- the expense ratio. I'd contribute what you need for the max match and then devote the rest of your asset allocation to other accounts (presumably with lower expense ratios).
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Old 06-29-2010, 09:16 PM   #4
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Good luck with whatever you decide.
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