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09-01-2013, 10:10 PM
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#1
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Recycles dryer sheets
Join Date: Aug 2013
Location: Norcal, Silly-Con Valley
Posts: 249
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Target Retirement Funds
I'm wondering what others think of having mostly FFKFX (Fidelity 2040 target retirement fund), with an expense ratio of 0.66%, in my 401k.
It seemed like a smart, easy choice. But now I'm about 75% thru the "4 Pillars" book, and I'm not so sure anymore. Paying this fee for 27 years doesn't seem great, but is it really bad/high?
Thanks for any opinions.
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09-02-2013, 01:02 AM
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#2
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Thinks s/he gets paid by the post
Join Date: Jun 2007
Posts: 2,657
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Target funds seem like an easy choice for someone who knows nothing about investing, but once you read a good book or two about index investing, putting together your own asset allocation using really low cost funds is pretty simple. Yes, the savings in ER over 27 years will be very significant.
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09-02-2013, 06:11 AM
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#3
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Dryer sheet aficionado
Join Date: May 2013
Posts: 45
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Depends entirely on what the other options are in your 401(k).
For example, are the low cost "Spartan" index funds available? In that case, yes, you'd be paying a high cost for the simplicity of a target fund.
But if the next-cheapest options are hardly any less expensive, and you're happy with the target fund's allocation, it's a different story.
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09-02-2013, 07:35 AM
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#5
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Nov 2010
Location: Sarasota, FL & Vermont
Posts: 36,370
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Quote:
Originally Posted by Mike Piper
Depends entirely on what the other options are in your 401(k).
For example, are the low cost "Spartan" index funds available? In that case, yes, you'd be paying a high cost for the simplicity of a target fund.
But if the next-cheapest options are hardly any less expensive, and you're happy with the target fund's allocation, it's a different story.
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+1 It depends on what else is available that fits your AA and what the ERs of those options are. For many 401k's , 0.66% is not too bad.
__________________
If something cannot endure laughter.... it cannot endure.
Patience is the art of concealing your impatience.
Slow and steady wins the race.
Retired Jan 2012 at age 56
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09-02-2013, 08:19 AM
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#6
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Recycles dryer sheets
Join Date: Aug 2013
Location: Norcal, Silly-Con Valley
Posts: 249
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Quote:
Originally Posted by pb4uski
+1 It depends on what else is available that fits your AA and what the ERs of those options are. For many 401k's , 0.66% is not too bad.
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I still haven't decided on an AA yet (hoping to do this after I finish 4 pillars).
My 401k boasts 34 investment options, but most of them are LFunds or other things that are just as expensive. I found 5 options with a low ER:
1) SPTN 500 Index Inst (FXSIX), 0.05%
2) SPTN Ext Mkt Idx Adv (FSEVX), 0.07%
3) Vang Tot Intl Stk IS (VTSNX), 0.12%
4) Vang REIT Idx Inst (VGSNX), 0.08%
5) Vang Tot BD MKT SIG (VBTSX), 0.10%
I guess this isn't too bad, if you are going to have only 5 options.
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09-02-2013, 08:20 AM
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#7
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Dryer sheet aficionado
Join Date: May 2013
Posts: 45
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In that case, yes, the target fund looks relatively quite expensive.
Also, looks like you have a great 401(k).
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09-02-2013, 08:44 AM
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#8
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Recycles dryer sheets
Join Date: Aug 2013
Location: Norcal, Silly-Con Valley
Posts: 249
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Quote:
Originally Posted by Mike Piper
In that case, yes, the target fund looks relatively quite expensive.
Also, looks like you have a great 401(k).
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Thanks for the encouragement. I have a follow-up question about one of these these choices...
How would you categorize FSEVX (extended mkt), if I tried to create an AA with this fund in it?
I'm reading some other web pages that say 80% S&P 500 (FXSIX) and 20% Ext Mkt (FSEVX) is equivalent to a total market fund.
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09-02-2013, 08:48 AM
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#9
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Dryer sheet aficionado
Join Date: May 2013
Posts: 45
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Quote:
Originally Posted by slowsaver
How would you categorize FSEVX (extended mkt), if I tried to create an AA with this fund in it?
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It's often helpful to look up a fund on Morningstar and click over to the "portfolio" tab to take a look at what's inside it.
Fidelity Spartan Extnd Mkt Idx Advtg Report (FSEVX) | Asset Allocation Summary
Quote:
Originally Posted by slowsaver
I'm reading some other web pages that say 80% S&P 500 (FXSIX) and 20% Ext Mkt (FSEVX) is equivalent to a total market fund.
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Yes, that's approximately correct.
To check, take a look at a "total stock market" fund on Morningstar (e.g., VTSMX) and see how much it has in mid/small-cap. Then see how much mid/small-cap is included in the S&P 500 fund.
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09-02-2013, 09:09 AM
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#10
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Nov 2010
Location: Sarasota, FL & Vermont
Posts: 36,370
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Quote:
Originally Posted by slowsaver
I still haven't decided on an AA yet (hoping to do this after I finish 4 pillars).
My 401k boasts 34 investment options, but most of them are LFunds or other things that are just as expensive. I found 5 options with a low ER:
1) SPTN 500 Index Inst (FXSIX), 0.05%
2) SPTN Ext Mkt Idx Adv (FSEVX), 0.07%
3) Vang Tot Intl Stk IS (VTSNX), 0.12%
4) Vang REIT Idx Inst (VGSNX), 0.08%
5) Vang Tot BD MKT SIG (VBTSX), 0.10%
I guess this isn't too bad, if you are going to have only 5 options.
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Some good choices there. What I would suggest is look at a number of the AA's of target date funds appropriate for when you want to retire and and then set an AA for yourself then buy the relevant proportions of the 500 index, extended mkt, international index and total bond that gets you close to your target AA. In doing so, if you have significant taxable investments/savings you may want to look across both your taxable and tax-deferred accounts in balancing and put your bond allocation in your 401k.
According to Vanguard Portfolio Watch the US stock market is 64% large-cap + 28% mid-cap + 8% small-cap.
__________________
If something cannot endure laughter.... it cannot endure.
Patience is the art of concealing your impatience.
Slow and steady wins the race.
Retired Jan 2012 at age 56
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