Review Your 401(k) Fund Fees

April 10th, 2009  |  Published in 401K  |  4 Comments

This week, I analyzed my wife’s old 401(k) and learned that she had around $7,000 spread across nine funds at T. Rowe Price. Fortunately for her, and most other 401(k) participants, she’s not charged for having so many funds; it’s just a bit of a mess whenever you open up her statements because you have nine balances, nine bar graphs on performance, and nine discussions of the fund’s prospectus.

The only tangible negative about having those nine funds is that it becomes very difficult to figure out what your composite expense ratio is. An expense ratio is how much you’re paying a mutual fund to manage your money. A composite expense ratio is the average expense ratio across all your funds after you take your balances into consideration. It’s what your expense ratio would be if you were to treat all the funds in your 401(k) as one fund.

Anyway, her composite expense ratio wasn’t too bad, a 0.6946%, but we consolidated it all into two funds – a S&P 500 index fund and a PIMCO bond fund. This cut her expense ratio in half and gave her the kind of diversity she probably was looking for in the first place. It’s not as diverse as it was before but this is easier to manage from an information perspective.

This also fits better with her overall diversity plans because integrating an old 401(k) with 2 funds is easier than integrating 9.

3 Reasons I Rolled Over My 401(k)

May 12th, 2008  |  Published in 401K  |  2 Comments

I’ve left two jobs in the last five years and each time I rolled over my 401(k) into a Rollover IRA held at Vanguard. In both cases, I rolled over the IRA within a few months of departing my job and I did so for a small handful of reasons.  I know now that I was right as projections in Australia show savings over $30,000 by retirement from rollover into one account.

The number one reason for rolling over my 401(k) into a Vanguard Rollover IRA was simplicity. Why deal with yet another account accessed through yet another website, when I could integrate everything and deal with that account through a great brokerage such as Vanguard? I don’t need more fund balance mailings and fund performance reports, I need my life to be simpler so I can focus on the other things that matter. The end result was that I rolled both of my 401(k)’s into a single Vanguard account (and then I turned on electronic delivery of statements!).

The second reason was for diversification, which is related to simplicity. If I have to access two 401(k)’s in two accounts, it’s much harder for me to control the asset diversification because I couldn’t feasibly see two accounts at once and tweak them concurrently to get the right diversification. One of the 401(k) had some home-brew funds (not created by a major brokerage like Vanguard or Fidelity), so I couldn’t even be certain what the asset allocation within the fund itself was like. It was far easier to pull them all into Vanguard and break them up into Vanguard funds, though any major brokerage like T. Rowe or Fidelity would’ve sufficed as well (I chose Vanguard because I’ve had a long history with them and never been disappointed).

The third reason was cost. At Vanguard, I pay no account maintenance fees whatsoever. If you turn on electronic delivery, the administrative costs go down to $0 and are integrated into the expense ratios of each fund. The funds at Vanguard are much cheaper than the ones at either of my 401(k) plans, though some were pegged to the same benchmarks. Cheaper isn’t necessarily better, much like expensive isn’t necessarily better, but Vanguard has a solid performance record and cost is something I can control.

One account instead of three, an accurate picture of diversification, and controlling the one aspect of mutual fund investing I can control (cost), were the reasons I rolled over my 401(k)’s to a Rollover IRA.