Can You Help Me To Reduce My Investment Portfolio's Expense Ratio

[nico08]

I was playing around with FIRECalc and I made an interesting discovery. I can increase my early retirement chance of success by reducing my expense ratio from where it currently is, about .6 percent, to about .2 percent. I have a asset allocation goal as follows:

stock
large cap 44%
mid/small cap 12%
international 23%

bonds
investment grade 14%
hi yield 2%
international 4%

Now, a good portion of my investment portfolio are in two 401k accounts from employers, so my ability to reduce the expense ratio on those accounts is limited to the choices within the plan.

A five percent increase in the chance of success in my early retirement is pretty significant, from my point of view. As such, can you recommend a set of low cost high quality mutual that would replicate my current asset allocation goal.

Also, in my taxable accounts, if I traded out of the mutual funds I have and into lower cost mutual funds, will I get hit with a big tax in the year that these transactions take place?

Thanks.

 

[photoguy]

Tracking your expenses is the first step to optimizing them so you are on the right path. Since I started tracking (only a few years ago) my expense ratio has dropped from 0.28% to 0.184%.

Now, a good portion of my investment portfolio are in two 401k accounts from employers, so my ability to reduce the expense ratio on those accounts is limited to the choices within the plan.

If you don't have good options in your 401k, you can always rollover your account to an IRA to get better options.

A five percent increase in the chance of success in my early retirement is pretty significant, from my point of view. As such, can you recommend a set of low cost high quality mutual that would replicate my current asset allocation goal.

Pretty much any vanguard index or etf. Fidelity spartan is another good choice. is hares has some reasonable options too.

Also, in my taxable accounts, if I traded out of the mutual funds I have and into lower cost mutual funds, will I get hit with a big tax in the year that these transactions take place?

You'll have to pay taxes on any capital gains you have.

 

[Animorph]

Sounds like Vanguard S&P 500 (VOO ETF 0.05% ER), Extended Stock Market (VXF ETF 0.14%), and All-World Ex-US (VEU ETF 0.15% ER) fit the equity side. But the exact choices depend on which broker you are using or want to move to.

 

[nico08]

Thanks. I do have an account with Vanguard so these funds should be good. What do you think about law expense ration bond funds?

Sounds like Vanguard S&P 500 (VOO ETF 0.05% ER), Extended Stock Market (VXF ETF 0.14%), and All-World Ex-US (VEU ETF 0.15% ER) fit the equity side. But the exact choices depend on which broker you are using or want to move to.

 

[Animorph]

Thanks. I do have an account with Vanguard so these funds should be good. What do you think about law expense ration bond funds?

BND is the total bond market ETF. ER is 0.10%. I don't use bonds much, so that's about all I know.

 

[ducky911]

while I was working I was good at putting money into my accounts. Now that I am retired I have learned to patch the holes in the dam.

I have been very happy with the expenses on Schwab etfs, just check out schb (.04) for example. Pretty cool way to make money is to not spend it.

My current over all average is just under .18....there are some things I could do to get it down a bit, but that's where I am now. Still adds up to a lot of money as a total per year.

 

[LOL!]

Now, a good portion of my investment portfolio are in two 401k accounts from employers, so my ability to reduce the expense ratio on those accounts is limited to the choices within the plan.

Two plans? Are you still working for both employers?

If not, one can rollover asset in an old 401(k) to a place with lower expense ratios.

With any 401(k) plan (or both!) one can probably figure out how to select the fund or funds with the lowest expense ratio and work out total asset allocation with funds in other accounts. For example, a 401(k) plan may have a low expense ratio S&P500 index fund, but the rest are high fees, so one would try to have all US large cap in the 401(k) as the S&P500 index fund.

 

[sailor]

Nico,
one (or two more things) to simplify: how important for you is your high yield bond position?
At 2% of your portfolio, the diversification benefits are negligible.
Also - check your 401k plans, some plans with Schwab or Fidelity allow full brokerage access, where you can use cheap ETFs.