Jump to content


Photo

What To Do About Vangurd?

Vanguard 403b fees

  • Please log in to reply
21 replies to this topic

#1 edietel

edietel
  • Members
  • 26 posts
  • Gender:Male
  • Location:New Hampshire

Posted 08 August 2017 - 08:02 AM

Hi everyone,

 

I haven't posted in awhile, but I knew just where to go for advice! (I'll be back more frequently going forward)

 

I received the letter from Vanguard regarding my 403b account, as has recently been discussed on here. I'm just not sure what to do about it, and I could really use some advice. OMNI charges me $3/month to use Vanguard, and Vanguard charges me $15/year to invest in a Target Date Fund. I decided $51/year in fees (on top of expense ratios) was worth it for the privilege of having access to Vanguard, since most of the offerings from my district are not as good. I imagine the OMNI fees won't be going away, so the partnership with Newport looks like it will raise my fees from $51/year to $96/year.

 

I only started investing last year, and I only have $2100 in my Target Date Fund. It looks like this fund does not have access to Admiral funds, so if I stay with Vanguard I will need to exchange these for something else to take advantage of the switch to Newport. It feels a little foolish to stay with Vanguard, however, since a much larger portion of my gains will be consumed by fees. But, given that it is a 403b, taking the money out before retirement seems like a no-go. Are my first year's contributions simply held hostage now?

 

Here are my options, as I see them. I have no idea what to do next, and I would love some guidance:

 

1) Keep the status quo, pay more in fees.

2) Stay with Vanguard, but switch into something that has admiral class shares. I don't want to use a managed fund. Higher fees remain, but hopefully I will pay less in expense ratios that will make this more advantageous. That said, my small balance means this will be marginal at best, right?

3) Treat this as a hostage situation, and we all know that the US doesn't negotiate with terrorists. I would leave my money in Vanguard, stop contributions, and open an account with someone else to begin contributing to. The decent options that I have access to are Aspire (403b and Roth), T Rowe Price, and TIAA.

4) Stop all retirement contributions, try and save $3,000 and open an IRA sometime next year.

5) Another genius idea that only the folks at 403bwise would think of. You guys rock.

 

The fourth option I like because, ideally, I would like my savings to not be taxed when I withdraw in retirement. But I don't have $3,000 saved, and I am not optimistic about my ability to save it on my own. Medical bills seem to be frequent things nowadays in my household, and there will always be something important that I will need to put my savings into. Having my district take the money out before I can get my hands on it has worked well so far. The ROTH Aspire is an attractive option for these reasons, but I have access to lower-fee options than Aspire so it is difficult to go with them.

 

I would LOVE any advice. I am feeling stuck.

 

Erich



#2 edietel

edietel
  • Members
  • 26 posts
  • Gender:Male
  • Location:New Hampshire

Posted 08 August 2017 - 08:05 AM

Sorry about the typo in the title. The editor doesn't give me the option to fix that. Oh well. I also didn't notice that Tony posted about this late last night. Sorry for creating a new thread when I could have replied in there!



#3 tony

tony
  • Members
  • 3,741 posts

Posted 08 August 2017 - 09:09 AM

This is an issue that can have no clear right or wrong answers and I really am not familiar with Omni.  Its been a while since I had to pay any 403b fees for being in Vanguard so this does not effect me and might taint my decision making a bit . If I were you, I would go with Vanguard directly through your employer and not worry so much about the superficial fees. I know  some others won't agree but the only fee that matters to me is the expense ratio you are paying yearly because its the one that has the most impact on your return.  If you can stay away from aggregators like Omni or Aspire and invest directly with Vanguard thats what I would do. Who needs the extra complexity?

 

I would stay with the Target fund and just damn the torpedoes.  Its self managed so you are less likely to screw up trying to pick funds and rebalance on your own. And you won't have to meet face to face with idiot advisors  whose intentions might be suspect.Its a very popular choice among a growing portion of investors who are not experts on investing and who want simplicity in their investment lives but want assurance that the account is being handled competently and honestly.

 

I think your real challenge is saving more than you are. I would maximize your savings rate and pay the medical bills slowly as you can. Debtors can not go after your 403b plan. 

 

I would adopt a pay your self first attitude. Make the first bill you pay every month your 403b. Then with whats left you pay your bills. Setting up  a paycheck withdrawal makes the savings automatic. 

I hope this helps.  You really can't go wrong with Vanguard.

 

In terms of a Roth vs tax sheltered account , I think a tax sheltered option might work better for you right now



#4 EdLaFave

EdLaFave
  • Members
  • 198 posts
  • Gender:Male
  • Location:Orlando, Fl

Posted 08 August 2017 - 10:27 AM

I'm confused about your situation. It sounds like you're choosing between OMNI or Vanguard as your 403b vendor and either way you'd be purchasing Vanguard funds. However, when you brought up $51 dollars it sounds like you're merging the OMNI fee (36/year) with the current Vanguard fee (15/fund). Then when you brought up  the $96 fee it sounds like you're merging the OMNI fee (36/year) with the new Vanguard fee (60/year).

 

I'm not familiar with OMNI but I see no reason the fees associated with Vanguard as a vendor would apply if you're buying Vanguard funds through OMNI.

 

What is OMNI's exact fee structure and available funds?

  • Looks like there is a $36/year flat fee.
  • Looks like you have Vanguard funds with access to Admiral shares?
  • Looks like you have access to target date, but what about total stock market, total international, and total bond?
  • What are the expense ratios for Vanguard funds (vendors sometimes increase these)?
  • Is there a fee to close the account?
  • Are there surrender fees?
  • Is there an AUM fee?
  • Any other fees?

Suppose OMNI is charging a flat $36/year fee, with access to Admiral Vanguard shares, without increasing the expense ratios, and without any other fees. OMNI is then the superior choice (by $24/year) relative to the new Vanguard structure which charges $60/year with access to Admiral Vanguard shares.

 

As far as target date funds vs individual total market funds, that is a matter of preference. If you don't mind the extra work then the individual funds will save you roughly 0.09% per year.

 

Just a reminder that IRAs come in 2 flavors. One, the traditional, is pre-tax and the other, a roth, is post-tax.

 

Some on this board have disagreed with me but I think the math is quite clear. Most people will benefit from traditional accounts because it will result in a lower effective tax rate. This is the short version of my argument...

 

When you use a Roth account you're paying tax at your highest bracket. In retirement most people are at or below the highest bracket when they worked. When you eventually pay tax from a Traditional account you get to fill up the lower tax brackets before you get to the higher brackets. This results in a lower effective tax rate.

 

Anther thought on 403b vs IRA from purely a fee perspective...it doesn't matter. If you've already got a 403b that hits you with a flat cost and charges the same expense ratios as an IRA then it doesn't matter where you put your money. At that point you'd have to begin looking at withdraw procedures and other regulations to see which is more appealing.


Navigate and reform OCPS' 403b and 457b.

#5 tony

tony
  • Members
  • 3,741 posts

Posted 08 August 2017 - 10:37 AM

Ed

 

I have to agree I was kind of confused about how the fees were described.  My angle is often not from a math standpoint but from a human standpoint. I think she is still not at the stage where she feels comfortable making her own investing decisions. I think the Target Fund would best fit the bill for her at the moment. Pursuit of lower fees is always the ultimate goal. However a few cents more  Target Fund that keeps her from making poor decisions or ending up with an unscrupulous advisor is well worth it.

 

I agree she should pursue a pretax approach.



#6 EdLaFave

EdLaFave
  • Members
  • 198 posts
  • Gender:Male
  • Location:Orlando, Fl

Posted 08 August 2017 - 10:46 AM

I think a single fund of funds (target date, lifestrategy, etc) is best for most people. I like the 3 fund portfolio for people who want to save a little extra on fees, will stick with their plans during a collapse, and don't mind spending a little time maintaining their portfolio. Most people are their own worst enemies which is why I like a single fund of funds, a family member of mine just went that route!
Navigate and reform OCPS' 403b and 457b.

#7 edietel

edietel
  • Members
  • 26 posts
  • Gender:Male
  • Location:New Hampshire

Posted 08 August 2017 - 10:53 AM

Hi Ed and Tony, thank you for your quick replies. I think I am going to make a decision today, and you are both helping me to think it through.

 

Sorry If I wasn't as clear as I could be. Let me take another stab at it: My district uses ONMI as their TPA. I have to go through them no matter what company I choose to invest with. OMNI charges me $3/month to make contributions to a 403b through Vanguard. OMNI does not (as far as I can tell) charge any monthly fees for using the other options available to me (the many predatory high fee companies, but also T Rowe, Aspire, and TIAA). I was more than happy to pay the $36/year last year, especially after seeing how many people were fighting to get Vanguard in their districts who said they would be happy to pay a similar monthly fee to do so. So, no problem there. It has no impact on Vanguard's fee structure, however. Vanguard doesn't get the $3/month - OMNI does. So Vanguard charges me their normal $15/year and the 0.16% expense ratio for the Target Date 2045 fund that I have $2,100 in currently. So, I don't get to choose between the $36 for OMNI and the $15 for Vanguard - I have to pay both. Because the partnership with Newport is going to raise the latter fee to $60/year, I am now busy rethinking my decision to use Vanguard.

 

I am more comfortable making my own investing decisions than I was a year ago. The Target Date seemed like a good decision at the time, and it may still be for the next 20 years. But I am more than happy to change my allocation to other funds. I think it makes the most sense to do so if I stick with Vanguard - why would I choose to pay investor share ratios when I can take advantage of admiral shares of the same funds? Vanguard seems to require a minimum of $10,000 to buy Admiral shares of the Total Stock Index, but it sounds like the partnership with Newport will allow me access to those now.

 

I have no problem continuing to invest pretax and increasing my contributions as my pay increases. I was contributing 5% of my salary last year, and I am increasing that to 7% this year. I love the idea of moving to a 3 fund portfolio, sticking with it through a collapse, and learning how to maintain the portfolio, if it means I can lower my expense ratios. I've spent enough time in these forums and listening to the podcast that I feel confident I can learn the ropes without a large investment of time.

 

I guess this is my issue: Do you think someone in my position is better served paying higher monthly fees for funds with lower expense ratios, or would it be better to pay lower monthly/quarterly/annual fees to switch to, say, a T Rowe Price fund with a 0.76% ER?

 

Thanks to you both - I am grateful for your assistance. Also, I am a man ;-)

 

Erich



#8 EdLaFave

EdLaFave
  • Members
  • 198 posts
  • Gender:Male
  • Location:Orlando, Fl

Posted 08 August 2017 - 11:40 AM

I'm working off memory here so hopefully I'm not introducing an inaccuracy...
 
Vanguard
  • Flat Fees = $96/year = $3/month (OMNI) + $5/month (Vanguard)
  • Percentage Fees = Uninflated Vanguard ERs
ASPire
  • Flat Fees = None?
  • Percentage Fees = 0.15% + Uninflated Vanguard ERs
TIAA
  • Flat Fees = None?
  • Percentage Fees = 0.58% + Uninflated Vanguard ERs (limited selection)
T Rowe
  • Don't know.
 
Clearly ASPire is better than TIAA so we can eliminate TIAA right now.
 
Once your balance exceeds $64,000 Vanguard will be a better deal. Until then ASPire will be the least expensive.
 
So assuming ASPire doesn't have any other flat fees or exit fees, then I'd use ASPire until I hit 64k and then I'd transfer to Vanguard. OR if I didn't want to put myself through that work or I didn't trust myself to not be lazy, then I'd go with Vanguard from the beginning.
 
I may have said this earlier but you (as I would) are optimizing at a very low level...tens of dollars per year. If you're anything like the "average" person then that energy is probably better spent elsewhere. Picking up extra responsibilities for more cash. Moving up to a higher paying job title. Finding cheaper companies to buy products/services from. Optimizing your budget. And so on.
 
I hate text because it can come across harsh and that isn't my intention. I empathize with the struggle people can have saving for retirement but retirement is a cruel beast. If you aren't able to find a way to save a massive amount then fees will be the least of your problems.

Navigate and reform OCPS' 403b and 457b.

#9 tony

tony
  • Members
  • 3,741 posts

Posted 08 August 2017 - 11:38 PM

Erich

 

I apologize for assuming you were female.

 

Do you think someone in my position is better served paying higher monthly fees for funds with lower expense ratios, or would it be better to pay lower monthly/quarterly/annual fees to switch to, say, a T Rowe Price fund with a 0.76% ER?

In my opinion I would gladly pay reasonable higher fees to get a lower expense ratio with a company with a good honest mission statement. Its not an ideal situation but better than the alternative of paying a higher expense ratio. 

 

After reading your response It seems to me you are on the right track to figuring  things out . I agree with Ed. Energy should be spent finding ways to increase contributions to the 403b plan rather than worrying too much about incidental fees .It would make sense for you however  to drop the target fund and go to a 3  index fund portfolio with Vanguard as long as you understand that with the second option you become the captain and that you must set you allocations and rebalance on your own. It won't be done for you outside of a target fund.



#10 edietel

edietel
  • Members
  • 26 posts
  • Gender:Male
  • Location:New Hampshire

Posted 08 August 2017 - 11:49 PM

No worries, Tony. On an online message board, it is an easy mistake to make. I am indebted to both of you for helping me figure out my situation. Thank you!

#11 tony

tony
  • Members
  • 3,741 posts

Posted 09 August 2017 - 08:58 AM

Erich,

 

I know I sometimes come across as a spokesman for Vanguard. Believe me I am not on their payroll. And, TRowe Price is actually a great company. Its just that I have bought into Vanguard's corporate mission statement of always putting the customer first, and  them always working towards lowering fees as a priority.  I trust them. I have done enough experimenting over the years to know that Vanguard is the real deal. Granted the current 403b  fee changes can be concerning if you are a low balance investor but being able to get into Admiral Shares and a Roth 403b is huge. Those new fees should be an incentive to save more and get your balances higher so the impact is diminished. Over time Vanguard will reward you mightily.



#12 edietel

edietel
  • Members
  • 26 posts
  • Gender:Male
  • Location:New Hampshire

Posted 10 August 2017 - 07:26 AM

That's good enough for me. I've decided to stay with Vanguard. After the switch to Newport takes place (they say it will be later this year), I'll be switching to a stock-heavy 3 fund portfolio that will gradually take on more bonds as the years go by.

One question, though: Since many of the big companies in the Total Stock Index are multinationals, do you think it is important to invest in the Total International Stock Index as well? Or is that a bit redundant?

I feel pretty good about this. Thanks gentlemen!

#13 EdLaFave

EdLaFave
  • Members
  • 198 posts
  • Gender:Male
  • Location:Orlando, Fl

Posted 10 August 2017 - 07:50 AM

You may want to check out my investing 101 page, https://educatorsfig.../investing-101/

Personally, 30% of my stocks are international. I didn't struggle with this choice. I think the folks who invest according to market weight have the most pure/right argument. I don't think the 100% US folks are "wrong", but they shouldn't pretend they're equally diversified. I think they'll be just fine as long as the US doesn't have a general collapse of institutions, but I'm not willing to put all my eggs in that basket.

 

...by far the most important aspect of this decision is sticking with it forever.


Navigate and reform OCPS' 403b and 457b.

#14 edietel

edietel
  • Members
  • 26 posts
  • Gender:Male
  • Location:New Hampshire

Posted 10 August 2017 - 04:06 PM

I just read through your page, Ed. Thanks for passing that along.

#15 tony

tony
  • Members
  • 3,741 posts

Posted 10 August 2017 - 06:37 PM

Erich

 

This is a supplement to Ed's comments.

 

John Bogle and Buffet both believe USA is where its at when it comes to investing. Since 2008 they've  been exactly right. If you didn't own any internationals during this time you would have been just fine. Internationals have been in the bottom of the performance rankings. Now as of this year they lead the pack. I would recommend a 20 percent allocation or slightly more to International index funds but don't over do it  with the hopes that internationals will continue to do great. If you suddenly decided to go say 30% -40% International just because they now lead the pack you would be chasing performance and could be greatly disappointed in the future if this outperformance does not continue.  John Bogle also has commented that many American companies do business in Europe and the rest of the world so just by owning Total Stock Market index you will be reaping the benefits of international growth since many American businesses operate overseas.  I own under 20% International stock  and I am happy with that allocation. Vanguard and others recommend a 30% allocation or more. But it is questionable that owning International will truly diversify you. Internationals often rise and fall in lockstep with domestic equities but not always.

 

Diversification is key here. Own Domestic and , International Large , Mid -Cap and Small Cap Stocks plus varied bonds as you get older. A three fund portfolio would accomplish this in the right proportions to your age and risk tolerance.

 

Tony

 

Also take a look at this chart to realize no one asset class wins every year. 

 

https://www.callan.c...KeyInd_2017.pdf







Also tagged with one or more of these keywords: Vanguard, 403b, fees