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Analyzing My Wife’s Old 401(k)

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Hand Painted Piggy BankMy wife has a 401(k) with T. Rowe Price from when she used to work at L’Oreal. She never rolled it over before the economic crisis because it wasn’t a priority and there was never a huge incentive to move. The expense ratios were reasonable, there was no annual fee, and it was more important for her to focus on moving, finding a new job, and devoting her time towards that and not rolling over a 401(k), which she could do anytime.

With the stock market swinging so wildly these days, it’s risky to rollover a 401(k) because you might miss a big jump in the transition time. Since the 401(k) isn’t horrible expense-wise, we can do a little spring cleaning and wait for a better time to rollover.

Expenses

She has about $7,000 spread out across nine funds, talk about diversification! She has six stock funds, two bond funds, and a target retirement fund that is a mix of both (but mostly stock):

  • T. Rowe Blue Chip Growth Fund (TRBCX) – (Large Growth) – 0.77%
  • T. Rowe Equity Income (PRFDX) – (Large Value) – 0.67%
  • T. Rowe Equity Index 500 (PREIX) – (Large Blend) – 0.35%
  • T. Rowe Mid-Cap Growth (RPMGX) – (Medium Growth) – 0.78%
  • T. Rowe Retirement 2040 (TRRDX) – (Large Growth, Medium Intermediate) 0.73
  • T. Rowe Small-Cap Stock (OTCFX) – (Small Growth) – 0.89%
  • CRM Mid Cap Value Instl (CRIMX) – (Medium Blend) – 0.81%
  • Dodge & Cox International Stock (DODFX) – (Large, Value) – 0.65%
  • PIMCO Total Return Instl (PTTRX) – (High Intermediate) 0.52%

Composite expense ratio: 0.6946%

The first thing I did was rebalance the portfolio so it was 85% in the Equity Index 500 fund and 15% in the PIMCO Total Return Bond fund. Nine funds was simply too many. The expense ratios for those funds weren’t outrageous but why pay 0.89% when you can pay 0.35%? Even the 0.35% isn’t ideal because you can get a Vanguard 500 Index Fund (VFINX) with an expense ratio of 0.15%, half price!

New composite expense ratio: 0.3755% (-0.3191%)

At first glance 0.3191% may not seem like a lot but it’s $22.33 a year on the $7,000 balance, which is $22.33 not working for you each and every year. Plus, I’d rather have the money in my pocket rather than the pocket of T. Rowe bankers and shareholders if I can manage it.

I haven’t confirmed this but according to the 401(k) literature, there’s a $10 annual administrative fee for each account with a balance under $5,000. Since my wife’s 401(k) has more than $5,000, we aren’t charged the $10 administrative fee. In looking at the transactions over the last 12 months, I don’t see a deduction of $10 anywhere, confirming this.

Simplifying Asset Allocations

By simplifying the allocation, it makes it easier to integrate that into our larger retirement portfolio diversification plans. $7,000 only represents a small percentage of our retirement portfolio. When determining your allocation, it’s best to simplify smaller accounts and do the “balancing” in larger accounts. This way you only need to adjust things in one account, not three or four.

Think there’s anything else I should other than wait for volatility to go down? We’re not losing much by staying at T. Rowe, other than paying slightly more for a fund, but I may be missing something you guys see. Please let me know!

(Photo: jbhill)

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16 Responses to “Analyzing My Wife’s Old 401(k)”

  1. Aside from the slightly higher expenses than you’d be paying at Vanguard, I don’t see any huge difference.

    Good job simplifying. No sense holding so many actively-managed funds. (Seems to me that the more you hold, the less likely you become of getting lucky and having your overall portfolio outperform the index.)

    Better to stick with low cost index funds anyway.

    • Jim says:

      The fees would be lower at Vanguard and the benefit is that most of our other assets are at Vanguard so the consolidation would also help from a management perspective.

  2. aa says:

    Now everything is big cap… not a good idea…

    • BrewCrewFan says:

      I had the same reaction at first, but Jim mentions that this is only a small part of his retirement assets. The allocation of these funds is consistent with hs overall asset allocation plan.

  3. Patrick says:

    Wow, that is a lot of funds for only $7,000. That was a good move on your part and many of those funds probably end up getting approximately the same return on the S&P 500 fund. Doesn’t Vanguard have some type of fee if you don’t have a minimum balance within each fund?

    • Jim says:

      Vanguard won’t let you invest in a fund unless you have $3,000 or $5,000 (or whatever the minimum is). There’s no extra fee, they just don’t let you play. :) You can avoid the administrative fee if you request electronic statements.

  4. Dave says:

    I moved my old 401(k) from my L’Oreal days a few months ago – It was right when everything started really going to hell in the markets. I got lucky in that in the three days it took to transfer the funds from TRP to Vanguard, the markets dropped about 7% – so basically I “earned” 7% in 3 days because the money was cash. If I had read this post before I decided to move my money, I probably would have just held off.

  5. BrewCrewFan says:

    I would recommend consolidating your retirement accounts into as few accounts as possible. A year ago, we had over 10 different retirement accounts (due to job changes and previous marriages). It is now down to four. Not only is it easier to manage our retirement accounts, consolidating the accounts means better service (a dedicated account rep) and lower fees (Vanguard offers lower fees for larger accounts.)

  6. thomas says:

    Nine funds and only 7k? Wow, that’s (what is the nicest thing to say) interesting. Nice job maximizing the minimizing of the account.

    • Jim says:

      I bet you that it’s more common than you think and, to be fair, there’s nothing wrong with that if it’s your only retirement account. You want diversity, but if you have to manage it across several accounts, it’s impossible if one 401(k) is broken up like that.

  7. workfaster says:

    I have funds in TRP also… note that the “account minimum” fee applies individually to each mutual fund… each fund you hold is considered a separate account. So it just reinforces your decision to consolidate.

  8. BD says:

    Looking at Fidelity Funds the following interest me the most: FFNOX (Index/Low Expense), FMAGX (Growth), and SPHIX (Yield).

    Good mix for an IRA?

  9. cindy says:

    According to Suze Orman, you need to have 85% in an index fund and 15% in international. You should never invest your 401k or IRA in bonds.

  10. BD says:

    Cindy: I wouldn’t take one persons opinion as a essential guideline for your retirement. Don’t follow the herd to make money in the market!

    Also bonds are essential downside protection in a any portfolio (ask anyone that lost 30% of the their retirement in the last year).


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