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BOGLEHEADS.ORG

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HELP! NEWBIE DILEMMA: 401K > VANGUARD ROTH?

Have a question about your personal investments? No matter how simple or
complex, you can ask it here.

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11 posts • Page 1 of 1
Topic Author
Cashola Posts: 10 Joined: Sun May 18, 2008 10:37 pm Location: South Florida
Contact:
Contact Cashola
Website


HELP! NEWBIE DILEMMA: 401K > VANGUARD ROTH?

 * Quote
 * 

Post by Cashola » Wed Jul 02, 2008 9:47 pm

Hello fellow Bogleheads. Here is a little background info leading to my dilemma:

2 months ago I started a Roth IRA with Vanguard, investing 20% of my monthly
income in the STAR fund. I've recently become eligible for my companies 401k
which will match $0.25 for every dollar you put in a.k.a 25%. They will match
you until they have matched up to $3000, so I know I will not be able to
contribute the max $12000, for the year.


The company that runs the 401k is Comerica. I've looked over the funds they
offer and they seemed to have high expense ratio's etc. Some more than 3 times
higher than Vanguard funds. They do offer a predetermined fund for your expected
retirement which I would be aiming for 2045 -or- you can set your own asset
allocation, offering these funds:

Stable Value Fund
American Funds Bond Fund R3
Van Kampen Equity and Income A
Comerica Destination ____ (fund name/year)
Janus Overseas Fund
Oppenheimer Global Fund A
MFS Value Fund
Davis New York Venture Fund A
Neuberger Berman Focus Trust Fund
Dreyfus S&P 500 Index
AMerican Funds Growth Fund of America R3
Franklin Balance Sheet Investment Fund A
Janus Mid Cap Value Fund Inv
Baron Asset Fund
Franklin Small-Mid Cap Growth Fund A
AIM Small Cap Growth A
Ryoce Opportunity Service
Neuberger Berman Fasciano Inv


Now...finally my dilemma:

1.) Should I fully invest what I can into my 401k and leave my ROTH untouched
until I can invest more (who knows when that will be)?

2.) Allocate a percentage for both my Roth and 401k?

3.) Go full force with my Vanguard Roth IRA due to low expense ratios and proven
track record?


Lastly, if I do invest in my 401k...what funds do you suggest I allocate in? I
dont have much experience or knowledge yet in investing and would like to avoid
any mistakes. I however, believe in LONG term investing and believe I can
stomach fluctuations and some risk for Higher returns in the long run. Any help
would be greatly appreciated!! Thanks in advance.
Top

Laura Posts: 7975 Joined: Mon Feb 19, 2007 6:40 pm


INVESTING ORDER

 * Quote
 * 

Post by Laura » Wed Jul 02, 2008 10:01 pm

cash,

The general rule of thumb for investing priority is:

1. 401k up to the match
2. Max out roth
3. Max out 401k
4. Taxable investing

Don't pass up free money so you definitely want to contribute enough to receive
all the matching funds. Add anything extra to your roth. In your case you want
to add it all to the 401k so you can receive the full match.

You did not post the expense ratios for the funds available in your 401k. Since
you are just starting out you might just go with the target retirement type fund
you mentioned. A quick glance at your fund options makes me thing that the
Dreyfus S&P 500 index is the lowest cost option and there isn't much else. If
you are stuck with higher costs then go with simplicity.

roth
Target Retirement

401k
Predetermined retirement portfolio

Laura
The views presented are my own and not necessarily those of the Department of
State or the U.S. Government.
Top

Trev H Posts: 1896 Joined: Fri Mar 02, 2007 9:47 pm


THE RIP

 * Quote
 * 

Post by Trev H » Thu Jul 03, 2008 4:29 pm

.
Found this on the Comerica site.

http://www.comerica.com/vgn-ext-templat ... aRCRD#12b1


How Compensation is Paid to Comerica Securities and Your Financial Consultant

Comerica Securities, Inc. (CS) and our Financial Consultants (FC) routinely
receive compensation for the sale of mutual funds. Payments from mutual fund
companies to CS may consist of a portion of any front-end sales charges, selling
fees, or concessions (depending on the share class in which you invest), fees
for distribution (Rule 12b-1 fees) and shareholder services fees. The Rule 12b-1
fees and shareholder service fees are paid out of fund assets, are part of the
fund’s expenses, and are required by law to be disclosed in the fund prospectus.


Comerica Securities, Inc. Approved Mutual Fund Providers

we have selected 19 fund families offering more than 400 mutual funds as our
“approved providers.”


The following is a list of approved fund family providers:



Aim/INVESCO
Alliance Capital
American Funds
Calamos
Calvert
Dreyfus Premier
Eaton Vance
Federated
Fidelity Advisor
Franklin Templeton
Goldman Sachs
Hartford
IDEX Asset Allocation Funds
Munder
Oppenheimer
PIMCO
Putnam
Thornburg
Van Kampen


====

Notice there are no Vanguard Funds in the list, probably no TRUE NO LOAD Funds
either.

12b-1 fees are a way to hide loads (from the average investor). They are
included inside the Funds ER, and you normally have to check out the prospectus
details to find them.

Check out your funds, and you will see them listed there.

Notice that Comerica says they have "selected" 19 fund famalies...

Why would they exclude Vanguard ?

Can you say "Conflict of Interest" !!!!

They limit your investment options to fund famalies that will include 12b-1
fees, and they get those as kick-backs (deceptive revenue sharing practices).

This is a very common problem.

Anyway - that is why the funds in your plan have High Fees, Comerica is
basically RIPPING the employees off.

They are probably charging you or your company a plan admin fee, and on top of
that they limit your investment options to funds that pay them kick backs (12b-1
fees).

As Bernstein put it in Four Pillars of Investing - Make no mistake about it, you
are engaged in a brutal zero-sum contest with the investment sales force and
every penny of commissions, fees and transactional cost it extracts is
irretrievably lost to you. Their ultimate goal is to transfer as much of your
wealth to their ledger books as they can.

===

If you get a good match, invest enough to get that, but then hit your ROTH at
Vanguard for the next 5K (or 6K if over 50 years old). Then consider going back
to the company plan, and taxable investing.

Good Luck !

Trev H
Top

Trev H Posts: 1896 Joined: Fri Mar 02, 2007 9:47 pm


ALSO...

 * Quote
 * 

Post by Trev H » Thu Jul 03, 2008 4:37 pm

.
If you happen to mention the 401k rip off problem to Company Management and they
want to do something about it, ask them to contact:


Mark H. Alley
Retirement Plan Consultant
Alerus Retirement Solutions
Phone: (800) 433-1685 ext. 6095
Fax: (651) 746-6142


Alerus will offer you a Open List of Funds (not a pre-screened for kick backs
list).

I expect the plan admin fees would be lower and you would have good low cost
funds including Vanguard in the plan.

If it is a very small company and plan you might also ask them to check out:

http://www.employeefiduciary.com/

Trev H
Top
Topic Author
Cashola Posts: 10 Joined: Sun May 18, 2008 10:37 pm Location: South Florida
Contact:
Contact Cashola
Website

 * Quote
 * 

Post by Cashola » Tue Jul 08, 2008 8:36 pm

Sorry it has taken me awhile to respond to this post. I want to thank you for
the prompt responses. I currently found out that they will only max match 25% of
a 4% contribution you put in monthly. So since I contribute 20% every month to
my saving/investing I will put in my 4% contribution to max the match they are
offering, and the rest, 16%, in my Vanguard Roth IRA. I will post the expense
ratios:

Stable Value Fund - 0.70%
American Funds Bond Fund R3 - 0.95%
Van Kampen Equity and Income A - 0.76%
Comerica Destination ____ (fund name/year) - 0.68%
Janus Overseas Fund - 0.89%
Oppenheimer Global Fund A - 1.05%
MFS Value Fund - 1.11%
Davis New York Venture Fund A - 0.84%
Neuberger Berman Focus Trust Fund - 1.07%
Dreyfus S&P 500 Index - 0.5%
AMerican Funds Growth Fund of America R3 - 0.93%
Franklin Balance Sheet Investment Fund A - 0.9%
Janus Mid Cap Value Fund Inv - 0.85%
Baron Asset Fund - 1.34%
Franklin Small-Mid Cap Growth Fund A - 0.98%
AIM Small Cap Growth A - 1.22%
Royce Opportunity Service - 1.29%
Neuberger Berman Fasciano Inv - 1.29%


These all seem to be fairly high as far as expense ratios. These are the net
expense ratios, i didnt post the gross expense ratios. Any suggestions on where
I should go if I can stomach risk, looking for long term growth. For my Vanguard
Fund I have my money in the STAR fund right now, but I was saving to reach $3000
so I can put it into Total Stock Market fund, S&P500 Index, or the 2045 Fund.
Would it be pointless to invest in similar funds between my Roth and my 401k?
Personally I was thinking of going with funds that are close to 100% stocks.
Allocate 50% in Janus Overseas Fund (JAOSX) and 50% in Janus Mid-Cap Value
Investor (JMCVX). I am open to any suggestions/help! Thanks again in advance
Last edited by Cashola on Tue Jul 08, 2008 9:27 pm, edited 1 time in total.
Top

arthurdawg Posts: 929 Joined: Mon Jun 02, 2008 7:47 am

 * Quote
 * 

Post by arthurdawg » Tue Jul 08, 2008 9:23 pm

hey cashola,

sounds like you need to step back and start thinking about an assett allocation
plan. you don't say how familiar you are with this, so reading some books would
be a good place to start, and there is a link on the main page to a number of
the good ones. depending on how much time you have reading either several of
rick's books or several of larry's books would be good, or you could read taylor
and mels' book as an introduction.

STAR is a good fund to start off with, and it would be reasonable to hold it
until you are up to about 10k or so which would allow you to split into several
different funds, depending upon how you set your allocation. most would
recommend some bonds regardless of age, so something like this would be a good
first step:

Total Stock Market VTSMX 40%
FTSE All World ex-US VFIWX 30%
Total Bond Market (Ticker escapes me!) 30%

you could then taylor (oops, tailor!) it to your specifications over time, if
you wanted to decrease the net % of global or bond. you don't say how quickly
you are accumulating, but this would probably take about three years of
contributions if you are maxing out.

as for the 401k, except for the dreyfus 500 fund, it's hard to fit those funds
into the allocation... i.e. i have american funds only in my 401k and ultimately
will probably use the american bond fund ultimately to hold a good part of my
fixed income even thought i would greatly prefer to use a vanguard bond fund.
the tax considerations for me personally support this despite the higher ER.
Therefore if you are really interested in indexing, you could use the dreyfus
500 fund and reduce the amount of TSM accordingly. later on you could add small
caps to the roth with vanguard small caps (NAESX) or some small cap value if you
want to pursue that angle (VISVX). Or, if you have the cash, sub small caps for
tsm above and use the 401 for us large caps with the dreyfus fund.

as you can see you need to think about your allocation, how much cash you will
have, possible interruptions to your saving (i started out with a bang and
barely kept my roths going while binging on kids), and how to try and get the
two accounts to work together. if your income will eventually spill over and
allow taxable accounts as well you can see it will take some work to pull it
together!
Indexed Fully!
Top

arthurdawg Posts: 929 Joined: Mon Jun 02, 2008 7:47 am

 * Quote
 * 

Post by arthurdawg » Tue Jul 08, 2008 9:30 pm

oops! to clarify my wordy paragraph up above:

one possiblity would be to reach 10k in the STAR account while accumulating
money in the dreyfus 500 or American Bond Fund fund to look at something like
this:

Vanguard roth:
FTSE Index
Small Cap Index
Total Bond Market -or- TSM

401k
Dreyfus 500 -or- The American bond funds

adjust percentages to desired allocation...

the real challenge is in putting your accounts together to get the match, be tax
efficient, use reasonable funds, and get the whole shebang to work together. As
you accumulate cash you could further diversify with a few more funds, add REIT,
and so forth. while the vast majority of us her believe in low cost indexed
portfolios, if you have a tax-advantaged account with a match it can still be
worth it to look at active funds to get you allocation to what you desire.

<blech>
Indexed Fully!
Top
Topic Author
Cashola Posts: 10 Joined: Sun May 18, 2008 10:37 pm Location: South Florida
Contact:
Contact Cashola
Website

 * Quote
 * 

Post by Cashola » Tue Jul 08, 2008 9:39 pm

Thanks for the help! Yeah, I am trying to figure out the allocation for my 401k
since I have to submit the papers very soon. So youre suggesting the Dreyfus S&P
500 may be my best bet? I am not necessarily immediately concerned about my
Vanguard funds since I have time to read and let it grow in my STAR fund for the
time being. But for my 401k I feel like its crunch time since I have less than a
month to choose. Initially for my 401k I was thinking of going the easy route
and going for the target retirement year fund 2045; however, since most of my
money will be going to my vanguard ROTH, i was thinking of adding a bit more
risk/growth in my 401k by Allocating 50% in Janus Overseas Fund (JAOSX) and 50%
in Janus Mid-Cap Value Investor (JMCVX).
Top

PiperWarrior Posts: 4068 Joined: Fri Dec 21, 2007 3:55 am Location: right on
course

 * Quote
 * 

Post by PiperWarrior » Tue Jul 08, 2008 10:06 pm

> Cashola wrote:So youre suggesting the Dreyfus S&P 500 may be my best bet?

I would say so.

> Cashola wrote:But for my 401k I feel like its crunch time since I have less
> than a month to choose.

I don't think your decision is permanent. Most 401(k) plans allow you to change
investments, and that's without a tax consequence. (There may be some fee if you
are switching too often.)

> Cashola wrote:i was thinking of adding a bit more risk/growth in my 401k by
> Allocating 50% in Janus Overseas Fund (JAOSX) and 50% in Janus Mid-Cap Value
> Investor (JMCVX).

I would keep costs low.

In general, I recommend choosing the cheapest and most reasonable fund(s) in a
401(k) plan and build the rest of your portfolio using a Roth IRA and/or taxable
account.

When your Roth IRA becomes large enough, I would buy Total International. When
it becomes even larger, add a bond fund.

So, you might have something like:

Roth IRA
Vanguard Total Intl Stock Index (VGTSX) (0.27%)
Vanguard Total Bond Market Index (VBMFX) (0.19%)

401(k)
Dreyfus S&P 500

This should at least get you started.
Top

arthurdawg Posts: 929 Joined: Mon Jun 02, 2008 7:47 am


THE DREYFUS FUND

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 * 

Post by arthurdawg » Tue Jul 08, 2008 10:13 pm

yup. as piperwarrior elegantly notes, i think this is your best bet in the 401k
for a good bedrock fund. consider that the total stock market fund is generally
about 70% s&p 500 and that you can always come back with a small cap fund or
extended market fund later! (that's vexmx btw.) the ER is ok at 0.5% when you
factor in the match and tax advantages.
Indexed Fully!
Top

PiperWarrior Posts: 4068 Joined: Fri Dec 21, 2007 3:55 am Location: right on
course

 * Quote
 * 

Post by PiperWarrior » Tue Jul 08, 2008 11:02 pm

Let me add one thing.

During the first few years, your saving rate matters much more than your asset
allocation. Your contributions for the next 12 months may be more than doubling
your portfolio. Any market movement becomes noise by your contributions. Sure,
there are several things that would be nice to add to your portfolio, but it's
impossible when your Roth IRA is small. For now, try to save at least 15% of
your pre-tax income and even more if you can do so comfortably. Close enough is
good enough. By capturing domestic/international large-cap stocks and domestic
nominal bonds, you've got all the basic asset classes.

Once you get to $50K or so, things become a lot easier. Vanguard funds' initial
minimums ($3,000 in most cases) tend do get in a way less frequently.
Top
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