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Vanguard, Tiaa-cref, Or Fidelity? And More....


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#1 lookingforvalue

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Posted 14 August 2005 - 03:39 PM

I very much appreciate the info I've discovered at this and other websites, and am about to take the plunge and open my first 403b account—it's a new teaching job, and the first opportunity I've had to open a 403b. I have, however, had a self-directed traditional IRA for many years, trading individual stocks through a discount broker. A few questions are below: I would greatly appreciate your advice and the wisdom of your experience.

First question: Which provider? I've narrowed it (from a long list of providers, mostly insurance annuities) to TIAA-CREF (only a short list of "variable annuities" seem to be available, not their full selection of funds) , Vanguard Investments, or Fidelity direct. The reasons I've focused on these three is that they are no-load (though some of the Fidelity funds are loaded) and have relatively low fees and expenses. I like the added flexibility in the Vanguard and Fidelity families. I am a little concerned about the $15 per fund annual maintenance charge from Vanguard, which would add up if I spread monies across several funds, but oitherwise I'm leaning toward them. My long-term plan is to roll the proceeds from the 403b account into my traditional IRA at retirement, rather than opt for an annuity. My retirement is probably in 15-20 years. Any strong recommendations for or against, or are those three equally suitable?

Second question: The mutual fund companies have "blend" funds, some of which invest in their other funds. Is the listed management fee of those blend funds the true total, including all fees--or it is an additional fee on top of the management fees of the underlying funds?

Third question: My school district also has a mandatory direct contribution retirement annuity plan, which takes 8% of gross pay, pre-tax. Does this amount apply toward my maximum 403b contribution?

Fourth question: Are there other questions I should be asking before I jump in?

Thanks in advance... your responses will be greatly appreciated.

#2 apple8

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Posted 14 August 2005 - 09:20 PM

TIAA-CREF, a very good company, can potentially disappoint with its limited choices. I'm currently with CREF and have only about six stock mutual funds to choose from. If you're a very hands-on person and anticipate really getting into the fun of choosing and managing your investments, then you probably won't like the limited number of choices. On the opposite end of the spectrum, if you wanted a totally hands-off approach and wanted to invest in a target date retirement fund, then TIAA-CREF may (again) not work out. If your district is like mine, then you won't have access to them.

My after-tax investments are with Vanguard. I am very happy with their selection and performance.

As for your second question, unless someone has shockingly new information for me, the fees listed for funds that are made up of other funds are exactly what is indicated. You do not have to do anything like add up the fees of several funds. For example, Vanguard's Life Strategy Growth Fund is made up of other funds (Total Stock Market Index, Asset Allocation, etc.) and its expense ratio is clearly listed as 0.26%. Note that this fee is larger than some of the funds within Life Strategy Growth and smaller than some of the funds within Life Strategy Growth.

#3 lookingforvalue

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Posted 14 August 2005 - 10:50 PM

Thanks very much for the response. Yes, far as I can tell, the TIAA-CREF offering is limited to a half-dozen or so "variable annuity" funds: stock, social choice, global, money market, a couple of bond options. I would like more options, so I'm leaning toward Vanguard, as you suggest.

My 403b will go through the Los Angeles County Office of Education--if anyone is interested, their (daunting, and frequently changing) list of providers is available at

http://www.lacoe.edu/includes/templates/document_frame.cfm?toURL=documents&id=2683

TIAA-CREF appears in the "annuities" as opposed to "custodial" group--I assume they'd have to be in the latter for me to get access to their full line of mutual funds. Lucky for me, Vanguard, I'm told, just reappeared on the list after not being available for many years (I gather this had to do with a "hold harmless" agreement).


#4 Guest_Sierra_*

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Posted 15 August 2005 - 05:10 PM

QUOTE (lookingforvalue @ Aug 14 2005, 03:39 PM)


Third question: My school district also has a mandatory direct contribution retirement annuity plan, which takes 8% of gross pay, pre-tax. Does this amount apply toward my maximum 403b contribution?


This 8 percent contribution stands alone. Is this annuity account administered by the public employee retirement system to which teachers in your school district belong?

#5 lookingforvalue

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Posted 15 August 2005 - 07:21 PM

Yes--CALSTRS.

#6 lookingforvalue

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Posted 15 August 2005 - 07:38 PM

I may have mis-characterized that CalSTRS plan--I'm not sure that "direct contribution" is the correct term. It's a "defined benefit" plan. A pension plan, in other words, and they pull out 8% of gross pay, pre-tax.

I was able to confirm what apple8 said about the blend funds at Vanguard--I talked to a Vanguard agent today. The stated expense ratio is the true expense ratio--in other words, the expenses of the underlying funds just pass through to the blend fund, which adds no expenses of its own. Good deal. I'm on the cusp of going with Vanguard, and picking one of those blend funds to start things off--those "life strategy" funds that apple8 mentioned look good to me. One other wrinkle with Vanguard: in addition to the annual $15 per fund (not per account), they charge a $10 per year fee in index funds if your balance is below $10,000. You'd hope they'd waive that with upstart retirement accounts, but if that's the worst of it with Vanguard, they look pretty good.

#7 ira

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Posted 15 August 2005 - 09:55 PM

Hi Mr. Looking for Value,

As a former teacher with lausd, the 8 percent goes to strs (
state teachers retirement fund) I believe that the district matches 8 and half percent to it. YOu will receive a statement each year.

At Vanguard, which is a great choice, I believe that they have target retirement funds, that you can choose depending on when you plan to retire, which are index fund(s) of funds, and I'm pretty sure don't have an extra index fund charge of 10 dollars for funds under 10K. The 15 dollar charge per fund still stands.

There is a discuusion site , diehards.org which is part of www.morningstar.com which is very informative about vanguard and investing in general. IMO its a premier site. There are recommended books and other sources listed there that will help you become better finacially educated which is critical. Additionally, the diehard group has local chapter where there are meeting, which you can attend if you wish. There is going to be one in Pasedena this month.

Best of luck,

Ira

#8 lookingforvalue

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Posted 16 August 2005 - 01:18 AM

Thanks for the advice and for pointing me to diehards.org, Ira. It looks like a really useful site.

#9 jebk0908

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Posted 18 August 2005 - 08:41 AM

I have been with tiaa-cref for many years. Your concern over the limited number of funds might be resolved in this way: T-C also offers "retirement class mutual funds", which include large cap, mid-cap value, mid-cap growth, small cap, real estate securities, S&P500, and others. The way to gain access to investing in these is to get the employer to authorize investing in them. My employer did it without action from employees some time ago and sent participants a letter to notify us of the availability. These new funds have performed very well.

#10 lookingforvalue

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Posted 18 August 2005 - 04:00 PM

Thanks for the reply, jebk.

At this point, I think I'll pick Vanguard, unless I hear some reason that TIAA-CREF (or another provider) is actually better. I did have a TIAA-CREF account for a fixed-term job I had a few years ago, and was very happy wih them (I eventually rolled that money into my traditional IRA, which has the flexibility I wish were available in the 403b).