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Lorirae

Just Learning - 403b Vendor List

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I went to my MEA's (Michigan Education Association) financial adviser 13 years ago to start a 403b. I knew nothing, but a trusted friend told me to start one. I'm now educating myself. This adviser has me with Prudential with everything in American Funds 2050 Target Date Retirement R3. I emailed asking if I could roll over to Vanguard. Her reply was that where I'm at is very good and here is a link to see what your school offers. Finding the list was not very intuitive, but here it is. Do I have a better option and how do I switch? And why don't I see where she has me now on this list? THANK YOU for any advice! Lori

403(b)

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Welcome Lorirae,

Thanks for joining the board. The good news is that you have Aspire which will give you access to Vanguard for a small fee and you have Fidelity Investments which offers direct access to very low costs. You are most likely paying about 1% in fees. Via Fidelity you can get their Freedom Fund 2050 fund (index fund version) for 0.12% https://fundresearch.fidelity.com/mutual-funds/summary/315793869 

Do you feel like you are getting good service for 0.78%. Here's a chart showing impact of fees on returns: https://403bwise.org/education#fee-impact

Keep the questions coming. We also have the 403bwise.org Facebook page https://www.facebook.com/groups/349968819000560/?ref=web_social_plugin

Dan 

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6 hours ago, Lorirae said:

And why don't I see where she has me now on this list? 

403(b)

Your district can add or remove vendors from their 403b and 457 lists. Those vendors removed can be grandfathered in, so that they can continue to be used if already established. But no new accounts with Prudential could be started. 

Although Aspire is good, Fidelity is excellent and the low-cost leader in 403b plans. Their Freedom Index funds are completely diversified and do rebalancing for you. All in a single fund. Both the Fidelity and Aspire plans are internet based, with no local rep to hold you hand. With a target date fund like the Freedom Index fund, a local rep is not really needed in my opinion. 

It looks like the American Funds Target Date 2050 R3 fund has an expense ratio of 1.07% which is very high. https://www.capitalgroup.com/individual/investments/fund/rcitx

The Fidelity Freedom Index fund has an expense ratio of 0.12%. https://fundresearch.fidelity.com/mutual-funds/summary/315793869 Their annual custodial fee is only $24.

I would stop contributing to the AF 403b. Then contact Fidelity and set up a 403b account with them. After it’s started and you are contributing to it, contact Fidelity for the form for transferring your AF 403b balance to your Fidelity 403b. An AF transfer form may also be required and this whole process can take a month or more.

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Fidelity is arguably the best plan in the nation, with Vanguard being the only competition.

If I were in your situation, I’d absolutely rollover the existing 403b to Fidelity. I documented their plan here.

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One caveat about Fidelity: they are the best choice UNLESS you find yourself investing in their many high-cost funds. They make this easy to do, as they have a very long list of funds, many with very similar names, so you have to take care when selecting where your investments are sent.  This just applies to set-up; once that is in place, you won't have any ongoing issue.

Fidelity offers excellent ultra-low cost index funds in their 403b, including Total Market Index (FSKAX), International Index Fund (FSPSX) and U.S. Bond Index Fund (FXNAX).   A portfolio made up of just those three funds would be great.  This is easy, but it does require you to make a couple of decisions: 10% bonds, 20%, 40%?  What proportion of US vs international stocks? You may also need to check in every couple of years and rebalance to adjust the proportion of shares in each fund you want.  The standard advice is to prefer few or zero bonds when decades from retirement, then increase the percentage of bonds (which are less volatile than stocks) as one gets closer to retirement age.  You can get sound advice about your portfolio allocation here.  It may sound daunting, but it is ultimately very simple.

You can also pick an all-in-one target date fund, which will cost noticeably more (about 4 times as much) but is still a reasonable choice if you don't want to make those choices.  Just make sure it is a Fidelity Freedom INDEX fund (the expense ratio--fees- will be about .12%) as opposed to a Fidelity Freedom fund, which will cost about four times as much as the index-based fund.

Rule of thumb: reject any fund with a expense ratio above .15%, or any transaction that involves an advisory fee.

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2 hours ago, whyme said:

Fidelity: they are the best choice UNLESS you find yourself investing in their many high-cost funds.

Most of their funds are of higher cost. I'm o.k with their index funds and they have good customer service. Fidelity was the first company I ever invested in. However they have no real interest in lowering fees. They only have an index fund component  to compete with Vanguard. They are very slick about calling investors and offering them free portfolio reviews and then suggesting  moving index fund money into more expensive Fidelity funds. That is no better than what annuity salespeople do.

 I prefer Vanguard because ALL their funds are very low cost across the board and they are not for profit. When picking a company you should also consider their mission statement and overall customer philosophy. Trust matters. They are not perfect, but pretty darn close.

Investing is not about shopping at the local dollar store alone to save a penny or two. There is more to it. Low fees is only one part of the formula. 

Its extremely important we send the right message to posters, that low fees alone doesn't alone make you a sophisticated investor-much more to it.

And as useful as  our comments here and Ed's guide to 403b choices might be, and I commend him for putting it together, newbies need to explore other more in-depth publications like books by John Bogle to get the bigger picture of investing if they wish to succeed .  Posting here should only be the beginning of your journey.

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5 hours ago, tony said:

Its extremely important we send the right message to posters, that low fees alone doesn't alone make you a sophisticated investor-much more to it.

And as useful as  our comments here and Ed's guide to 403b choices might be, and I commend him for putting it together, newbies need to explore other more in-depth publications like books by John Bogle to get the bigger picture of investing if they wish to succeed .  Posting here should only be the beginning of your journey.

I'm not quite sure what you're saying here, Tony, about the message we are sending.  I'm all for learning about investing and navigating the financial services industry by reading Bogle, Malkiel and others.  Such authors will help an investor to realize why they should invest in the recommended fashion and provide encouragement to "stay the course" in the face of bear markets and the siren songs of financial marketing.  But I don't see the problem with suggesting a specific course to someone wanting to invest their current 403b funds more effectively.  Am I missing something in your critique?  

The regulars here all know the principles that make for a high probability of success in a retirement portfolio: regular contributions, broad diversification, buy and hold (little or no trading), minimize costs.  Anyone can get started--and even make it to retirement--with this advice without having to evaluate different views on such matters as factor weighting or target date fund construction or even indexing vs active funds or single stocks: as you know, many (most, I'd venture) people don't have the inclination to make investing a topic of study, they just want to avoid big mistakes with their retirement money.  I feel like we're offering Lori a straightforward plan that she can implement now without further research which will give her the benefit of long term compounding at substantially lower cost than her current arrangement.

 

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Whyme

I think the advice you gave her is good as was everyone else's. I am just trying to encourage people to get beyond fees alone as a panacea to their 403b problems.  The fact is folks paying 2%  in fees can have better retirement outcomes than someone paying much lower fees depending on savings rate over time, and general investing sophistication. I know someone who invested in nothing but high cost annuities who is sitting on a pretty impressive nest egg despite the fees. 

We can suggest Vanguard or Fidelity all we want but if the investors makes other mistakes with their investments it can all be for naught.   I am just feeling that we need to give more holistic advice any time we can beyond just low fees and that posters should never expect us to solve their investing issues by just suggesting low fees. I'm promoting personal empowerment by reading and learning on your own.

I am sorry if I am misunderstood. My apologies for not making sense. Hope this helps a bit.

Incidentally, I think you always give good expanded advice.

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Thanks, Tony.  That makes sense: low fee index funds alone aren't of much value building a nest egg without a substantial and consistent savings rate over a long period of time; it would be unfortunate if someone came away with the idea that low costs alone will solve their retirement problem.  But it's hard to know how much of that "holistic" advice to include when someone asks for advice on a specific question; we also run the risk of making the situation seem so complicated that people don't engage retirement savings at all, or run into the clutches of some insurance salesman or broker offering "free" "financial advice."

It may be that we put too little emphasis on the size of the contribution people should make, maybe because that's a hard thing to generalize about, given people's varying family circumstances, participation in pension plans, etc.  

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I feel comfortable emphasizing fees because:

  • I think everybody understands that the amount of money they save (or don't save) is critical.
  • I think most people perceive excessive fees to be small because 2% isn't a "big" number, when in reality we know it steals more than half of your real investment returns.
  • Fees are the #1 predictor of returns.

The formula is simple:

  • Invest in total market index funds with fees somewhere between 0% - 0.17% (roughly).
  • Invest in international and domestic stocks (pick a split and stick with it).
  • Invest in enough bonds so that when stocks go down you don't do something stupid.
  • Reject consumerism and materialism.
  • Take the excess money from each paycheck and buy more investments regardless of what the market is doing.
  • Never sell until you need money in retirement.
  • Reject the fantasy that you can predict anything in the short to medium term when it comes to the stock market.

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2 hours ago, whyme said:

But it's hard to know how much of that "holistic" advice to include when someone asks for advice on a specific question; we also run the risk of making the situation seem so complicated that people don't engage retirement savings at all, or run into the clutches of some insurance salesman or broker offering "free" "financial advice."

You are right we  do  sometimes inadvertently complicate the matter at hand because we all know so much and want to share our knowledge and experiences.  . Might make the OP dizzy at times .You , Ed, Steve, Krow and MN Gopher and others  (me)all have somewhat different perspective/experiences on things and that's a good thing overall for a poster . It's better than an OP not getting any responses.  

 

2 hours ago, whyme said:

It may be that we put too little emphasis on the size of the contribution people should make, maybe because that's a hard thing to generalize about, given people's varying family circumstances, participation in pension plans, etc.  

Thats a good point. Nobody is going to benefit from low fees if they are not maximizing their savings in the right kind of funds in the right allocations.  Knowledge is power. and most Americans need more of it.

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2 hours ago, EdLaFave said:

I feel comfortable emphasizing fees because:

  • I think everybody understands that the amount of money they save (or don't save) is critical.
  • I think most people perceive excessive fees to be small because 2% isn't a "big" number, when in reality we know it steals more than half of your real investment returns.
  • Fees are the #1 predictor of returns.

The formula is simple:

  • Invest in total market index funds with fees somewhere between 0% - 0.17% (roughly).
  • Invest in international and domestic stocks (pick a split and stick with it).
  • Invest in enough bonds so that when stocks go down you don't do something stupid.
  • Reject consumerism and materialism.
  • Take the excess money from each paycheck and buy more investments regardless of what the market is doing.
  • Never sell until you need money in retirement.
  • Reject the fantasy that you can predict anything in the short to medium term when it comes to the stock market.

Good stuff and to the point.

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