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Everything posted by EdLaFave

  1. I definitely want to be kept up to date on that. I'd also like to know when/if they reduce the expense ratio of the other funds. For example, just a few days ago Fidelity's Total Market Index Fund (FSTVX) was listed as a 0.035% expense ratio, but Fidelity's site now shows it marked down to 0.015%. I'll be curious to see if the 403b/457b plans immediately benefit from this...that way I can update my site. Overall, I think this might make Fidelity the best 403b/457b vendor in the industry. I want to see how everything shakes out. The folks over on bogleheads are having a back and forth about the revenue generated from security lending and how it is added back into the fund as performance (rather than being subtracted from the expense ratio). The premise being is that you can't go by expense ratio alone....but if that had a significant impact then I don't understand why Vanguard's 500 Admiral shares consistently lag the S&P 500 (by an amount essentially equal to the expense ratio).
  2. I don't want to speak prematurely, but this seems like a game changer. I don't know if I should restructure my portfolio or wait to see how things shake out. Will Vanguard respond? Is this not as great as it sounds? ...too bad a big chunk of my investments are in a taxable account with reasonably large capital gains.
  3. https://www.cnbc.com/2018/08/01/fidelity-one-ups-vanguard-first-company-to-offer-no-fee-index-fund.html
  4. I suspect there might be a miscommunication surrounding what we are right or wrong about. My contention is that the Total Stock Market fund owns each asset class (small to large, value to growth) in proportion to their market capitalization. I also agree the overweighting scheme has been successful in the past. The article doesn’t conflict with that. I’m not sure how we are defining the term diversification. Yes Total Stock Market has a small percentage in small companies, but that is because small companies represent a small portion of the economy. I don’t think overweighting an asset relative to market capitalization equates to increased diversification. I get the sense that perhaps you view diversification in more absolute terms...in that case splitting your portfolio into thirds (big, mid, and small) would represent maximum diversity?
  5. I think Lincoln Investment has the "Participant Directed Plan" whereas Lincoln Financial Group does not. I think the two threads below support my intuition. I need to be fact checked because I put minimal effort into this post. https://www.bogleheads.org/forum/viewtopic.php?t=175295 http://board.403bwise.com/topic/6361-lincoln-investments-participant-directed-platform/
  6. PlanMember is in the list. Andy specifically said they had access to PlanMember Select. I kind of assumed that PlanMember offers: Direct, Select, Elite, and a select of Annuities. I suspect Andy would have to call PlanMember to see what deal they worked out for their district.
  7. You're right. I truly wonder if I'd be diagnosed with some kind of condition...honestly. I just want folks read reading this thread to know that they're fully diversified in US stocks with the Vanguard Total Stock Market Index Fund. Plenty of reasonable people add additional funds to "overweight" their favorite asset classes (small/mid, value, real estate, and so on), but I want folks to know that this approach represents a more complex and speculative strategy that investing legends actually disagree with (presumably some agree too)...so there shouldn't be pressure to dive deeper into something that may already feel overwhelming. Do fact check me, but I believe the index the Total Stock Market tracks does weight small/large and value/growth in the exact proportion those businesses represent in the economy.
  8. You may want to consider what is being done with the money from the business sale. If it has been sitting in cash, that represents an indirect form of market timing. With the exception of possibly an emergency fund, I think it is a mistake to think of each account as a miniature, stand-alone portfolio. Doing this leads to higher fees, greater complexity, and sub-optimal investment choices. At the end of the day you have a specific risk tolerance and your overall portfolio should conform to that risk tolerance. Looking at one account as conservative and another as aggressive can be a form of mental gymnastics that causes you to stray from the path that is optimal for you. Who knows if it is best to use a Roth IRA and pay 12% tax right now? I'd have to know your expected income in retirement, but more than that I'd have to forecast the tax code at that time. Whether it is optimal or not, I can't imagine you'll be upset that you paid a 12% tax on income right now. I view this decision as an optimization based on unknowable information. I think your plan is reasonable. I documented the PlanMember Select plan here. When I looked through their funds the cheapest one costs 0.41% so you'll be paying at least 0.51% for the pleasure of having this account. I don't see any reason to choose the "Select" plan when you can invest in the Direct plan, which I documented here. You could build a fully diversified portfolio for 0.401% using Vanguard index funds. Still that is quite expensive. Lincoln has a self-directed account that might be very cheap. Search this form for discussion on that plan. Aspire has a plan, which lets you build a fully diversified portfolio for 0.208% as Tony said. I documented that plan here. Even better than that, Security Benefit has a plan called NEA DirectInvest. In that plan you can build a fully diversified portfolio for just 0.063%, which I documented here. I'm personally enrolled in this plan and I think it is clearly your best option (except potentially for Lincoln because I don't know the exact details of that plan). I documented the steps I went through to enroll in it here.
  9. At the risk of nit-picking language, I'd just add that this isn't exactly adding diversification because the Total Stock Market Index fund invests in small and mid size companies. By adding a Small Cap fund or an Extended Market fund what you're doing is investing in those companies more heavily than the proportion those companies represent in the economy. You're "over-weighting" small/mid size companies. If you look at historical data, this approach does produce higher returns. You may hear this fact and wonder why in the world you wouldn't adopt this strategy. Well, I can promise you that every strategy you'll ever hear about will have been successful using past data. People won't popularize something that has been a failure; they'll look back at the data and work backwards from there to come up with a strategy. Unfortunately, we can never know if this derived strategy just happened to work in the past or if it is somehow a guaranteed result based on some fundamental truth of our economy...a truth that existed then and will continue to exist. So folks like Bogle have argued against this approach because it is based on the idea that you can predict which asset classes will outperform...a philosophy that runs counter to his core thesis that "nobody knows nothing."
  10. Yes, you want an "investment provider," but what that means in practice is that you want a vendor that will give you access to low cost, total market, index funds without adding on a bunch of fees and complexity. I'm not familiar with everybody on the list but Fidelity and Vanguard are the two best vendors in the industry and it really isn't close. I wrote about and documented them here. I think you're fine with either, you'll get slightly lower fees with Fidelity and you'll get a better, more trustworthy culture with Vanguard. You may want to read my Investing 101 page, which explains the all-in-one fund and 3 fund portfolios. The gist is, all-in-one requires no maintenance at all from you and is a bit more expensive while the 3 fund requires very minimal maintenance from you and is cheaper.
  11. If you’re paying 2.34% in fees then it probably makes sense to pay the surrender fee and get out. That of course depends on the surrender fees and the fees of the vendor you’d be going to. You probably need to talk to more people and keep pushing. Talking to people in person or at least on the phone is helpful. Although, my first question would be, “when will new vendors be solicited?” Apparently here in OCPS (FL) they only make changes to retirement plans once every five years. The key is to use low cost, total market, index funds to cover US stocks, foreign stocks, and bonds. You can do this with a one fund portfolio (i.e. target date funds or fixed allocation funds like Vanguards LifeStrategy funds) or with a three fund portfolio (i.e. individual total maket funds for the 3 main asset classes). You can do this using any number of institutions such as Vanguard, Fidelity, and so forth.
  12. Thanks for pushing me to stay current. As a result, I updated the page I use to document the top 5 vendors in Florida. If anybody browses the page, let me know if I goofed on anything.
  13. Great info whyme. Are you able to link me to something that says Fidelity charges $20/year? I've read in so many places that the fee is $24/year, for example: https://www.403bcompare.com/products/68#/fees https://www.bogleheads.org/forum/viewtopic.php?t=214138 However, I just called Fidelity and they confirmed it is $20/year here in OCPS (FL), but they couldn't point me to anything that is publicly available, which says it is $20/year. Sadly I think I've been propagating incorrect information because I've repeated that $24/year number too many times to count.
  14. Tony, thanks to your post, I now realize I was incorrect in claiming Vanguard's target date funds are less expensive...I'll have to update my website. Here is the Fidelity vs Vanguard comparison: 2015: 0.14% vs 0.13% 2020: 0.14% vs 0.13% 2025: 0.14% vs 0.14% 2030: 0.14% vs 0.14% 2035: 0.14% vs 0.14% 2040: 0.14% vs 0.15% 2045: 0.14% vs 0.15% 2050: 0.14% vs 0.15% I think at one point Fidelity was roughly 0.05% more expensive, but MAYBE they have (recently) decreased their expense ratios to better compete or maybe I was flat out wrong? BEWARE: The Fidelity Freedom Index target date funds are cheap BUT the Fidelity Freedom target date funds are about 4.7 times more expensive. The word "Index" is key, don't make a mistake! I want to mostly second Tony's thoughts. Vanguard is owned by the investors who buy their mutual funds, which means they're not as inclined to take advantage of you as the other financial institutions are. Vanguard pioneered the index fund and their leader, Jack Bogle, is a hero to the average investor. As a result of this revolution, other financial institutions have been forced to offer similarly excellent investments in an attempt to slow down the massive flow of investors who have been switching to Vanguard over the past few decades. So whether we're talking about Schwab, BlackRock, Fidelity, etc. you can almost always build a fully diversified, low cost, index fund based portfolio. Sometimes they even offer slightly lower prices than Vanguard! However, these same institutions have not abandoned their "evil" ways because they still offer really high cost funds. Sometimes, as is the case with Fidelity, they give these high cost funds names that are really similar to the low cost variant...I can only assume this is done with less than pure motivations. It isn't all roses at Vanguard either because as Tony has said they've begun indulging in managed funds (albeit they aren't as expensive as other managed funds) and funds dedicated to a specific sectors of the economy. Jack Bogle is no longer running things and he has spoken out against this practice...I think Jack might be happy if they only offered total market index funds, fixed allocation funds, and target date funds...he certainly isn't interested in an Energy Sector ETF that can be traded infinitely in a 24 hour period. However, I believe (know?) that Vanguard is most likely to steer customers towards building fully diversified portfolios at the lowest possible price. They certainly did when I called and asked for input. I can't say that about the other institutions (especially in the 403b/457b world). So my bottom line is that Vanguard may charge slightly higher fees (0.01% or an extra $36 annual fee) than somebody like Fidelity, but that might be worth it to know you won't have to worry about ripped off and to reward Vanguard for revolutionizing the industry with the index fund. However, I'd caution against blind loyalty because who knows where Vanguard is headed without Bogle behind the wheel. If somebody is choosing between an index fund portfolio at Fidelity or Vanguard, they won't go "wrong". If somebody is choosing between Vanguard/Fidelity or AXA/PlanMember then they may go very wrong.
  15. No problem. Just so I can be fact-checked, this is how I determined when the new access to Admiral shares fully pays for the new annual fee. Although previously I think Vanguard had an annual fee based on the number of funds you owned, so the Vanguard/Newport development is still beneficial for folks with balances less than 66k. Its just that once you hit 66k the savings is fully paying for the new annual fee.
  16. Not sure if I can explain this well, but I'll give it a try. At the highest level, investment accounts are broken into two categories: taxable and tax advantaged. Taxable A taxable account is something that you open on your own with a financial institution like Vanguard, Fidelity, Schwab, etc. and to over-simplify the matter, the investments you buy within that account receive the last favorable tax treatment. You typically put money into this account by transferring cash from your checking/savings account. From there you can select the mutual funds (or individual stocks which I don't advise) to buy. Tax Advantaged With a tax advantaged account, the investments you own within that account are given a "tax break" of some kind. However, this category of a tax advantaged account can be further subdivided into an employer-sponsored account and an individual account. How the account is opened and how money is put into the account depends. Tax Advantaged, Employer Sponsored Examples of employer sponsored accounts are 401k, 403b, 457b, and so forth. As the name implies you can only contribute to an employer-sponsored account if you work for the employer who set it up and the money you contribute to an employer sponsored account must be deducted from your paycheck (maybe there are exceptions, but that is the general rule). Often (always?) when you setup the account you specify how you want money you contribute to be invested and this is done automatically for you each pay check. Tax Advantaged, Individual Examples of individual accounts are IRA, HSA, etc. Similar to a taxable account, it is your responsibility open the account with a financial institution like Vanguard, Fidelity, Schwab, etc., you contribute money to the account by transferring it from checking/savings, and once cash is in the account you select which investments to purchase. Unlike a taxable account, you'll receive the "tax break" that comes with being a tax advantaged account. Provided you meet the income restrictions, anybody can contribute to an IRA. An HSA (health savings account) is a little more complicated and comes with some extra perks. You can treat an HSA just like an IRA, but you can only contribute to an HSA if you have a HDHP (high deductable health plan). Tax Advantaged, Roth vs Traditional Whether your tax advantaged account is employer sponsored or individual (possibly with the exception of an HSA, not sure there) you often get to choose whether it is a Roth or a Traditional. This choice determines exactly what kind of "tax break" you get. With a traditional account, whatever you contribute gets deducted from your taxable income, which means if you contribute $1,000 and your top bracket is 22% then you save $220 on your tax bill that year. As long as the money remains in the account, you won't be taxed. Eventually, hopefully in retirement, when you pull the money out it will be treated as ordinary income which means the first Y dollars will not be taxed at all, the next Z dollars will be taxed at the lowest bracket, the next set of dollars will be taxed at the next highest bracket, and so on and so forth. With a roth account, lets say you earned $1,000 and paid 22% tax on it and now you have $880. You can take the $880 and put it into a Roth account to buy an investment. As long as the money is in the account you will not pay taxes and even when you pull it out in retirement you won't pay taxes. Setting up IRA If you call Vanguard they'll walk you through it, but basically you open an account with Vanguard (or any institution), which can be done on their website, and in that process you specify it is for an IRA. The account will be linked to your checking/savings and you'll be allowed to transfer money into the account. I think the first time you transfer money into the account it goes into a money market fund, which is basically a fancy savings account earning low interest. At that point you can select the mutual funds to buy and you're all set. The subsequent times you put money into the account I think you select which mutual fund to buy with it and you can bypass the money market step.
  17. Just in case you hate researching these companies as much as I did, I wanted to throw out a potential (but likely un-useful) alternative. If you can only afford to invest $5,500 or less per year (or $11,000 if you have a spouse) then for now you can invest exclusively in an IRA account and not worry about digging to find out who your "least bad" 403b vendor is. That will give you time to get the district to add a good vendor...hopefully before you're able to save an amount that exceeds the annual IRA limit. Similarly, for spouses with financial trust and who comingle their money, if one spouse has a great retirement plan but the other doesn't then they can take most of the money out of one spouse's check to invest in retirement and use most of the money from the other's check to pay bills. So if you had a spouse with a good 401k, 403b, 457b, etc then it might be best to rely on that and forgo your (likely) medicore/bad 403b. ...just a thought that might help you avoid digging through the sludge (it drove me nuts when I did it).
  18. You've got to find the fee information. If you can buy Vanguard funds, but they charge you a 1.25% yearly fee then it isn't great. Sorry, I'm not sure where to point you to get that data.
  19. Personally, I was more than surprised when I learned that the monthly distributions from bonds (whether from a bond fund or an all-in-one fund that holds bonds) would be taxed at my highest income tax bracket even though I didn't sell a single share. Generally speaking, my point is that I'd have to know more information about a person and the accounts they hold to recommend 3-fund vs 1-fund. In particular, my point is that having a taxable account might encourage you to go with a 3-fund even though you might otherwise want a 1-fund. For example, suppose the following: You have a taxable account. You have a 403b account. Your desired stock/bond split is 80/20. You purchased the 80/20 LifeStrategy fund in your 403b account. In this case you'd have to own bonds in your taxable account to maintain your 80/20 asset allocation. Furthermore, unless you went with lower paying municipal bonds (i.e. tax break) then you'd generate a higher tax bill. So for this hypothetical person, they might want to weigh the convenience of the all in one fund with the higher tax bill that would be generated due to the taxable account. Had they gone with a 3 fund portfolio they could own all their bonds in the 403b account and hold a disproportionate share of their stocks in the taxable account. Your experience was quite bad and you were more than rational. I felt stress and anxiety just reading the thread you wrote about it. Ugh. If you have $66,666 or more in a Vanguard 403b then the lower fees from the newly granted access to Admiral shares outweighs the addition of a flat $60/year fee to have the account. I remember folks in this circumstance going on rants about how this is an example of Vanguard abandoning their core principles and how Vanguard is trying to milk every dollar from investors and as a result they were going to promptly close their Vanguard 403b and roll it over to another vendor. These are the kind of folks I was thinking of when I used the words emotional and irrational. You've been quite rational in all of your posts, which is one of the reasons I like reading your thoughts.
  20. The market very well may crash or maybe it wont. The one thing you need to know is that nobody can accurately predict the market in the short term (i.e. anything not measured in decades). This is an uncomfortable reality, but good investors will have internalized this fact. Don't do it. Run. Fast. It is impossible for me to more strongly endorse your instinct. If it were me, I'd definitely choose Vanguard if I wanted an all-in-one fund and I'd probably choose Fidelity if I wanted a 3 fund portfolio. I don't know the magnitude of the problems with Newport and I don't know if it has decreased or been eliminated. I do feel compelled to make one point though, folks on the internet and the Bogleheads in particular have responded in a surprisingly irrational and hostile way to the Vanguard/Newport development even before problems were documented. I'm absolutely sure there is merit to their complaints, but I think anybody reading them should perhaps recognize that they're responding in a less than cold and logical fashion. I'd have to know more about you, but generally a Target Date fund or LifeStrategy fund are great for people who want to do as little management as humanly possible and are willing to pay an extra 0.10% to obtain that perk. As you might guess, owning three funds (total us stock, total international stock, and total bond) will save you in fees, but you have to make sure your allocation stays where you want it because each fund will gain/decrease out of sync with each other. However, don't feel like this is hard or time consuming because it might cost you an hour per year and for me I personally find this interesting enough to not be annoying. Some corner cases to consider: An all-in-one fund may not be great for a taxable account because of the way bond income is taxed. If you or your spouse has a retirement account where one asset class is very expensive then a 3 fund portfolio may be desirable because each spouse can buy what is cheapest and together as a whole their portfolios will meet the desired asset allocation for the cheapest price. ...I was going to make this list longer but I got lazy. I think their all-in-one funds are pricier, but I think their individual funds used for a 3 fund portfolio may be a bit cheaper. Plus I think their yearly fee is $24 whereas Vanguard's is $60. I believe everything Tony said is 100% correct, but I just want to provide extra clarification. If you buy the individual total market index funds through Fidelity you'll have an ELITE portfolio in terms of diversification and fees. In my view and I think any objective view, Fidelity and Vanguard are the best and I wish everybody had access to them.
  21. I don't think anybody can tell you the BEST percentage to allocate to international. I seem to remember reading that Vanguard says you can get "most" of the diversification benefit by allocating 20% - 40% of your stocks to international. Vanguard's target date funds allocate 40% of their stocks to international. Folks like Bogle (and maybe Buffett) argue that 100% US stock is fine. It is an argument of authority, but people who disagree with Bogle have almost always been wrong. You can google their view on the issue to see if you find them compelling. I personally chose to allocate 30% of my stocks to international, but I chose that number rather arbitrarily. I may have chosen it because Bogle's argument against international caused me to shift it a bit away from what Vanguard's Target Date funds use. I can't remember exactly. The main point is that once you choose a percentage, stick with it forever. Somebody with 0% and somebody with 50% are probably both going to do very well, but somebody that bounces around between that range throughout the years is probably going to do the worst.
  22. IRAs are accounts you open on your own, you deposit money into on your own, and you choose your own investments. You can contribute up to $5,500 per year to them and if you have a spouse they can also contribute $5,500 per year. If your IRA is Traditional then you get to deduct your contributions from your taxable income (smaller tax bill each year)...then you pay taxes when you eventually pull the money out. If your IRA is Roth then you don't deduct your contributions from your taxable income, but you won't pay taxes when you eventually pull the money out. I strongly recommend opening an IRA with Vanguard, but you can find good options other places as well.
  23. Unfortunately, only you can determine what is too aggressive, there isn't a mathematical formula for that. I do think that your values are reasonably in line with most people in a situation similar to yours. My personal approach is to understand that stocks can lose half their value seemingly over night and take many years to eventually recover. So I ask myself, what percentage of my portfolio can I financially and emotionally "afford" to lose and then I pick a bond percentage that will guarantee I never exceed that value. So if I felt comfortable losing 37.5% of my portfolio then I'd use the formula (100 - 37.5 * 2) to determine that I should have a 25% allocation to bonds. The numbers you've listed indicate that 16.66% of the stocks you own would be international. In terms of market share, US stocks represent close to 1/2 of the economy. So you are disproportionately investing in US stock. This isn't "wrong", but you should be aware of this fact and you must commit to it forever. The worst thing you could do would be for international to start outperforming and as a result you start to invest a larger percentage in international. That is performance chasing and you need to stick to whatever plan you pick. When you say you need 70% of current income, how do you come to that figure? What is the numerator? I personally wouldn't calculate the income I need in retirement based on the income I had when working. I would (and do) base the income I'll need in retirement on my historical spending accounting for potential changes that will result from retirement (maybe more vacations, hobbies, entertainment, healthcare, etc and maybe less on a paid of mortgage and so forth). Some folks want to build a portfolio that will sustain itself indefinitely. So the idea is that the portfolio has to earn enough to make up for inflation and even more to account for spending. So they might assume that that inflation will be 3% and their portfolio will return 7%. That means that when their annual spending is equal to 4% of their entire portfolio then they'll be financially independent with a portfolio that will theoretically continue forever. Some folks look at that and worry about some bad years throwing the entire plan off. What if the stock market does really poorly and the 4% I keep pulling out year after year depletes the portfolio and then for the decades ahead the portfolio just slowly declines because it is no longer big enough to sustain the spending? So these folks might say even though my portfolio generates an inflation-adjusted return of 4%, I'm going to wait until my bills are only 3% of the portfolio. Some other folks live too close to the edge for my tastes and don't even try to build a self-sustaining portfolio. In inflation adjusted terms they spend more than the portfolio generates every year and as a result their wealth decreases each year. These folks are in a death race, will they die before the portfolio is depleted? Sounds stressful to me.
  24. Unless there are special case loop holes that I"m unaware of, yes you'll have to stick with an authorized vendor. Also, with respect to the Union endorsing Kades-Margolis, don't take that too seriously because in 403b/457b land Unions are often corrupted and ignorant. I quickly looked at the Kades-Margolis website and I suspect they're a bad choice. The reason I came to this conclusion is because they seem to have two products: "Money by Design" and "Platinum". They don't specify the fees or any particulars on their website, which usually means they're hiding something. In both plans they talk about requiring a financial adviser, which means the fees will be high. Any time I see something named "platinum" or "elite" or whatever...it indicates that the product is especially bad for investors. Kades-Margolis may still be the best of the group, I don't know, but it looks like the group is quite bad. Pushing for better vendors and using an IRA seems to be in your best interest.
  25. If you search the form you'll see my posts advocating for Traditional instead of Roth, but that isn't a point I want to make now. I just want to say that everybody with a 403b, 457b, 401k, etc. should consider maxing out an IRA (Roth or Traditional) first because they'll have access to the widest array and lowest priced investments. You may want to read my web site, it documents the plans in my district/state and provides general investing help, but it also documents some of my efforts to reform my district (particularly in my blog section). I just had a pretty major partial success in getting Vanguard/Fidelity added to my district's vendor list. If you want you can send me a direct message and we can chat more off this thread. ...but if you want to lobby these are the first things to know/explore: Understand exactly why your current vendors are bad. Understand exactly how the best 403b/457b vendors/plans are structured. Identify who in the district decides on what plans are added (usually it is a committee). Identify who the school board members are. Identify and connect with the vendors you'd like to see added. Meet with the folks from #3 and #4 and explain the problem, provide them with the solution, and offer all of your help to make it a reality. Be super nice and knowledgeable and do everything you can to reduce the work they'll have to do to as close to zero as possible.
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