New 403b options - need advice

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fiddlefaddle
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New 403b options - need advice

Postby fiddlefaddle » Thu Jan 17, 2013 11:13 am

My 403b has added some new funds, including the Vanguard Target Retirement funds. They have a lower expense ratio than the other options, plus I wouldn't have to figure out asset allocation like I do now. My IRA and Roth IRA are both already invested in these funds. My question: is there any drawback to having all my eggs in one basket, so to speak?

[I've been reading and learning about investing, but still don't feel totally confident that I'm not forgetting or unaware of something when I make a decision like this. Thanks for your feedback/opinions!]

Bichon Frise
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Re: New 403b options - need advice

Postby Bichon Frise » Thu Jan 17, 2013 12:02 pm

I would view this as all your eggs in one basket.

http://www.obliviousinvestor.com/is-it- ... companies/
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stannius
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Re: New 403b options - need advice

Postby stannius » Thu Jan 17, 2013 12:28 pm

Bichon Frise wrote:I would view this as all your eggs in one basket.

http://www.obliviousinvestor.com/is-it- ... companies/


Did you mean "wouldn't"? There's not really any reason to worry about this unless your assets at one brokerage are (well) over $500k.

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Re: New 403b options - need advice

Postby DoingHomework » Thu Jan 17, 2013 12:44 pm

Now here's an interesting followup...

The article says Vanguard is not a broker so SIPC protection does not apply. Fair enough. But what if you simply invest through the Vanguard brokerage. Surely Vanguard brokerage is a brokerage.

While that does not specifically apply to the OP's question about a 403(b) plan, I am curious about the answer.

In the OP's case the 403(b) plan might be separately protected as well and that is probably worth checking into if there is an egg basket issue.

My concern with investing in the target date funds at all is that it results in a small increase in fees even with Vanguard. A person could simply look on the Vanguard website, determine which funds (or asset classes) the target date fund is invested in, and buy those funds in the same proportion. It is admittedly a very small issue. But if teh OP had asked whether putting 75% in Vanguard Total Stock and 25% in Total Bond I don't think anyone would be thinking of the egg-basket issue.

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Re: New 403b options - need advice

Postby Bichon Frise » Thu Jan 17, 2013 12:45 pm

stannius wrote:
Bichon Frise wrote:I would view this as all your eggs in one basket.

http://www.obliviousinvestor.com/is-it- ... companies/


Did you mean "wouldn't"? There's not really any reason to worry about this unless your assets at one brokerage are (well) over $500k.


correct. Even if you assets were over $500k, I wouldn't (and I don't) worry about it.
Bichon Frise

"If you only have 1 year to live, move to Penn...as it will seem like an eternity."

avocado wrote:Good to see you back, I was starting to miss your incisive commentary!

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Re: New 403b options - need advice

Postby Bichon Frise » Thu Jan 17, 2013 12:48 pm

DoingHomework wrote:Now here's an interesting followup...

The article says Vanguard is not a broker so SIPC protection does not apply. Fair enough. But what if you simply invest through the Vanguard brokerage. Surely Vanguard brokerage is a brokerage.

While that does not specifically apply to the OP's question about a 403(b) plan, I am curious about the answer.

In the OP's case the 403(b) plan might be separately protected as well and that is probably worth checking into if there is an egg basket issue.

My concern with investing in the target date funds at all is that it results in a small increase in fees even with Vanguard. A person could simply look on the Vanguard website, determine which funds (or asset classes) the target date fund is invested in, and buy those funds in the same proportion. It is admittedly a very small issue. But if teh OP had asked whether putting 75% in Vanguard Total Stock and 25% in Total Bond I don't think anyone would be thinking of the egg-basket issue.


You should email Mike (Oblivious Investor) and ask him.

I've found it is only worthwhile to do your "own Target Date fund" if you can buy into Admiral. To buy into Admiral across all funds, one would need at least $100k (assuming ~10% bond fund allocation).
Bichon Frise

"If you only have 1 year to live, move to Penn...as it will seem like an eternity."

avocado wrote:Good to see you back, I was starting to miss your incisive commentary!

stannius
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Re: New 403b options - need advice

Postby stannius » Thu Jan 17, 2013 12:59 pm

DoingHomework wrote:My concern with investing in the target date funds at all is that it results in a small increase in fees even with Vanguard. A person could simply look on the Vanguard website, determine which funds (or asset classes) the target date fund is invested in, and buy those funds in the same proportion. It is admittedly a very small issue. But if teh OP had asked whether putting 75% in Vanguard Total Stock and 25% in Total Bond I don't think anyone would be thinking of the egg-basket issue.


What about rebalancing? Is it not worth the small additional fee to have that taken care of automatically?

DoingHomework
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Re: New 403b options - need advice

Postby DoingHomework » Thu Jan 17, 2013 1:14 pm

stannius wrote:What about rebalancing? Is it not worth the small additional fee to have that taken care of automatically?


Probably. As I said, it is a very minor issue in my opinion. I guess it depends on how cheap you are.

fiddlefaddle
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Re: New 403b options - need advice

Postby fiddlefaddle » Thu Jan 17, 2013 1:44 pm

Thanks for the replies so far! Will read through in more detail tonight.

In regards to the slightly higher expense ratio DH pointed out...that is true, but the expense ratio is lower than all but one of my other 403b choices, and it's a very specific Vanguard fund, so not something I would want to put my entire contribution into. Most are in the .5 - .75 range, so I think this is actually my cheapest option out of those offered for now.

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Re: New 403b options - need advice

Postby frugalcoconut » Tue Jan 22, 2013 4:33 pm

I think it's fine putting all your money into the target date Vanguard fund within your 403b because it has one of the lowest expense ratios available in the company-sponsored plan ... but, to me, the question is whether you should transfer the existing balances in your IRA / Roth IRA into different funds for purposes of diversification.

IMHO, the target date style fund has a commonly used/accepted asset allocation and is designed for easy/lazy investing. If you're happy with set-it-and-forget-it, then that may work for you. I personally prefer to spread things out a little ... adding more international and small caps, for example ... so that large-cap domestic isn't so overweighted. I do this within my Vanguard Roth IRA since I have plenty of choices there (as opposed to the limited selection offered by an employer).

I don't believe that either strategy is inherently "wrong". It is a matter of opinion and personal preference. Whatever works for you. 8)


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