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I'll be the first to admit that I don't know too much about investment, but isn't the typical advice to pretty much ONLY put your money into the Vanguard Target
by rdegges 10y ago
I'll be the first to admit that I don't know too much about investment, but isn't the typical advice to pretty much ONLY put your money into the Vanguard Target funds based on your year of retirement?
This is some relatively widespread retirement knowledge, and is frequently referenced by the likes of r/personalfinance, r/investing, etc.
How does Guideline somehow out perform Vanguard who's been the king of this forever? Serious question.
- wtvanhest 10y agoI'm not an expert on Guideline, but most 401k plans have preset vendors so you might not have the option for vanguard at all.
- busque 10y agoYeah, that's not the case for us. We do have Vanguard funds amongst other low-cost mutual funds. We also have our own investment committee which evaluates and adds funds as appropriate. We have no fund relationships and do not make commission.
- dahdum 10y agoThey do use Vanguard funds, they charge $8/month per employee to the employer to handle the 401k, and the employee pays: Avg. fund expense of 0.10% 0.03% custodial fee Seems like a great choice for a business.
- idunno246 10y agohow does that compare to other fees all in? Obviously the employee cost is really good, but is the typical 1-2% employee fee company just passing that $8 onto you? Especially in lower paying companies, that could add up
- ucaetano 10y ago$8/month = $56/year, divided by Vanguard's 0.0018 equals $31k. So if the employee has in his 401k: - $20k, the equivalent fee is 0.41% - $50k, the equivalent fee is 0.24% - $120k, the equivalent fee is 0.18% - $200k, the equivalent fee is 0.16% - $1M, the equivalent fee is 0.136%
- samb1729 10y agoCould you elaborate on how you got those numbers? You lost me at $56 but I don't understand your percentages either so perhaps I'm missing something here.
- ucaetano 10y agoPercentage = [(56/Capital) + 0.13%] 56 = cost to employer Capital = how much the employer has in the 401k 0.13% = average fund fee So if Capital = 200k Percentage = [56/200k + 0.13%] = 0.028% + 0.13% = 0.16% My guess is that they're focusing on new plans, not allowing rollover from previous plans and not allowing employees to keep the plan after they leave the company. In this situation they're able to have mostly savers with low or very low balances, and they charge on average higher fees than Vanguard and others.
- thedufer 10y ago8 * 12 is 96, not 56.
- ucaetano 10y agoHa, good catch, a typo and lack of sleep propagated through the numbers :)
- mercutio2 10y ago$8/month = $96/year, not $56.
- ucaetano 10y agoCorrecting myself, it's $96, not $56. That bumps up the fees a bit. Sadly, too late to edit it.
- ucaetano 10y agoVanguard funds have on average 0.18% expense, with the industry having much higher than that. How do they use Vanguard funds?
- boulos 10y agoNot all the funds are that high. The .18% vanguard quotes is their real, across customers, result. Their more active funds are higher (like VEXPX at .49%) while their larger scale Admiral funds are often as low as .05% (like VTSAX). Vanguard ETFs offer the same rates as the equivalent Admiral class shares, so services like Wealthfront use those. Wrapping Vanguard is a lot easier these days ;)
- loeg 10y agoInstitutional class expense ratios are much lower than 0.18% average. Also, they can pick the lower cost funds.
- nordsieck 10y agoThey're talking about 401(k), not IRA, which means it has to be managed by a custodian on top of what ever fees a fund charges. Guideline is trying to be the Vanguard of 401(k) custodians. The second hand info I have from a startup (that I worked at) negotiating with a 401(k) provider leads me to believe that are basically 2 common 401(k) setups in the industry. In the least bad case, the company pays a bunch of money to the custodian in exchange for the custodian giving the employees access to good funds (vanguard institutional shares). In the more bad case, the company pays the custodian nothing, and the employees only get access to funds that kick money back to the custodian. As you might be able to guess, these funds typically have quite high fees.
- saryant 10y agoIsn't Vanguard already the Vanguard of 401k custodians? (My 401k is managed by Vanguard)
- nordsieck 10y agoHuh - I hadn't realized they were. Most of guideline's copy focuses on low prices, so I assumed that that's an effective way they could differentiate themselves. I think the important thing to understand about this space is that a custodian is required by law, and that their fees they take are (conceptually) separate from the fees your funds charge.
- busque 10y agoHi I'm the founder. The copy is not meant to focus on low prices, but rather low expense for the participant. I understand that might be coming through. You are correct on the custodian fee, that is a pass through and having a custodian is great! Appreciate the feedback!
- tanderson92 10y agoNot for solo 401(k) users; that would be Fidelity. Vanguard doesn't allow access to the lower-cost Admiral share classes for solo 401(k)s.
- cloudjacker 10y ago"Balanced" - We are going to underperform both the stock and bond market for you simultaneously
- Ntrails 10y agoThe default advice should probably be that, but if you look at the old Defined Benefit schemes there are very good reasons that they diversify away from pure equity/bond splits to grow their assets. In fact you should look to the large endowment funds too in terms of what a best practice asset distribution looks like. The "stick it in a low cost tracker" model is fine, and in instances where you get shitty access at shitty fees makes excellent sense. However, Property/Reinsurance/etc are good sources of return which do not correlate as strongly to markets in general (Although property at the very tails tends to). The Aussie super-fund stuff is interesting reading for this stuff as they manage to get the economies of scale required to make access to alternative betas vaguely affordable.
- busque 10y agoHi I'm the CEO of Guideline. This is a common misconception. It's actually the topic for my next blog post. Target Date funds are just funds of funds. Your paying nearly twice the expense ratio for the same underlying funds. They charge the extra fees because they change the fund allocation for you as you age.
- gmnash 10y agoI am looking forward to this upcoming post about why you decided to avoid target date funds. Specifically I am curious how you calculate that target date funds have nearly twice the expense ratio compared to guideline. VFIFX (https://www.google.com/finance?ei=CWOOUpC2CO-bsgfSRw&q=VFIFX https://www.google.com/finance?ei=CWOOUpC2CO-bsgfSRw&q=VFIFX) has an expense ratio of 0.16% while guidelines is 0.13%. Cheaper, yes, but not twice as cheap.
- loeg 10y agoEven in the retail segment, the target date funds don't have "Admiral" options. So you see 0.16% with VFIFX, 0.05% with VTSAX, 0.12% VTIAX, 0.06% VBTLX. A 3-fund of VTSAX/VTIAX/VBTLX can average around 0.08% for the same underlying asset allocation as VFIFX at 0.16%. That's roughly double.
- loeg 10y agoThe target funds have higher fees and are less tax friendly for non-retirement accounts. In a 401(k), if they have low institutional fees, sure. Basically, with component funds, you can always implement a target date glide path. You can't get the component funds usefully out of a target date.