401K Planning?
#21
Gets Weekends Off
Joined APC: Sep 2022
Posts: 148
#22
Line Holder
Joined APC: Sep 2022
Posts: 53
As mentioned the target date funds have a larger mix of assets which might be a positive but their fees are orders of magnitude higher than the index funds. For the younger pilots just starting who can expect to have $10M balances those fees will become absolutely egregious.
My personal preference is to use valuations to reduce stock exposure during bubbles but in any case the low cost index funds will outperform the target date funds.
Why are the target date funds the default option? Because they make more money for the administrator. Buy a yacht for yourself if you wish but don't buy one for finance folks.
My personal preference is to use valuations to reduce stock exposure during bubbles but in any case the low cost index funds will outperform the target date funds.
Why are the target date funds the default option? Because they make more money for the administrator. Buy a yacht for yourself if you wish but don't buy one for finance folks.
#23
Gets Weekends Off
Joined APC: Dec 2011
Position: A320 FO
Posts: 848
The next question is if you get anything for your money. The target date funds lag the S&P500 index by 50%. But that's ok if they protect you during drawdowns. Oops, they don't do that either because of the correlation between stock and bond fund returns.
In short, like most Wall Street innovations they don't do what they claim but they do generate more fees. Too lazy to watch your portfolio? Then buy some index funds and turn on automatic rebalancing.
But being too lazy to manage your money is just like being too lazy to bid. If you choose that route don't whine when it doesn't turn out like you hoped.
#25
Gets Weekends Off
Joined APC: Dec 2007
Position: Window seat
Posts: 5,229
You can choose how often you evaluate your distribution. Some review/rebalance on a 6 or 12 month basis, some rebalance on a 5%/20% imbalance limit. The book explains this - younger might be 80/20 stock/bonds. If the 80/20 split reaches a 5% change (75/25 or 85/15) they rebalance. Within each stock/bond you'll have 7-12 (?) funds. If those get out of whack by 20% amongst their own group (ie stock funds vs other stock funds, bond funds vs bond funds) the high fund (up by 20%) is rebalanced among the lower than expected funds. The book/video explains the concept.
Plus a 1:03 video of the author speaking to Google employees who just became millionaires -
https://www.amazon.com/Smartest-Investment-Book-Youll-Ever/dp/0399535993/ref=pd_lpo_sccl_2/140-3762055-8667720?pd_rd_w=zCncx&content-id=amzn1.sym.116f529c-aa4d-4763-b2b6-4d614ec7dc00&pf_rd_p=116f529c-aa4d-4763-b2b6-4d614ec7dc00&pf_rd_r=FASRAN7FW2KTQ0KGX0KZ&pd_rd_wg =PYsvM&pd_rd_r=4d974e06-3436-483b-9072-bf1e79bb9868&pd_rd_i=0399535993&psc=1
https://www.youtube.com/watch?v=Y0LSG2omvEg
Last edited by Sliceback; 12-14-2023 at 08:29 AM. Reason: added - you can choose how often you evaluate your distribution. Once a year is very common.
#26
Gets Weekends Off
Joined APC: Feb 2020
Posts: 212
Yeah you have to buy/transfer to brokerage link (should be at bottom of list). You can do up to 95% IIRC. Then inside brokerage link you can buy FXAIX and setup for auto purchse. Careful with brokerage link it allows the purchase of any stock, I highly recommend you don't FOMO and just stick to SP500 solely in retirement account.
The other 5% in AA 401k base account I think I did target date or something or maybe small cap but it really doesn't matter.
If you run into problems call Fidelity they are really good.
The other 5% in AA 401k base account I think I did target date or something or maybe small cap but it really doesn't matter.
If you run into problems call Fidelity they are really good.
Thanks!
#27
Do you guys know if there is a difference in fees or taxes etc between using the "US Large Cap Stock Index Fund" from Fidelity to follow the S&P for my 401k (from the same selection where it has the "Target Date" options) vs doing the above mentioned brokerage method and then buying FXAIX or maybe VOO ETF that way?
Thanks!
Thanks!
#29
Clear ECAM
Joined APC: Oct 2014
Posts: 887
Note that the above is in reference to IRAs. The calculus for 401(k) is a little bit different but there are proper strategies for those allocations as well.
TLDR: Most of the time it’s best to max out the Roth, however sometimes prioritizing the traditional may make more sense, but the criteria may be subjective.
#30
Gets Weekends Off
Joined APC: Dec 2019
Posts: 1,870
its all just a guess on what future tax rates will be and what tax bucket you will be in in retirement. It is easier to pass along a ROTH to your heirs when you die though.
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