Re-balance Cycle Reminder All MyPlanIQ’s newsletters are archived here.

For regular SAA and TAA portfolios, the next re-balance will be on Monday, April 17, 2017. You can also find the re-balance calendar for 2017 on ‘Dashboard‘ page once you log in.

As a reminder to expert users: advanced portfolios are still re-balanced based on their original re-balance schedules and they are not the same as those used in Strategic and Tactical Asset Allocation (SAA and TAA) portfolios of a plan.

Please note that we now list the next re-balance date on every portfolio page.

Fund Fees: That’s (Still) Outrageous

You would think that after so many years of campaigns by investors, people like John Bogle and index fund companies like Vanguard and Dimension Fund Advisors, investment fund fees would have dropped dramatically. But instead, fees of funds are stubbornly high. Funds track the same index could have their fees vary markedly. Moreover, you would think that in a sufficiently efficient capital market, fees for a similar or same fund should be very close. Unfortunately, you are wrong again.

From our start in 2008, we were one of the first to assail the high fees in funds and poor fund coverage in 401k plans. The lowest hanging fruit or free lunch for investors to improve their returns is to invest funds with lower fees. Up to this date, we are still puzzled by what we have frequently come across with so many instances of outrageous fees, in both 401k type plans and brokerages. Talk about efficient capital market and less regulation!

High fees in 401k plans

Among many 401k plans in our database, expenses of similar index funds can vary, sometimes as much as 0.7% to 1%. Many small businesses use a 401k plan provider from a payroll processor such as ADP. Recently, a user gave us his 401k plan from ADP mykplan (Notice that MyPlanIQ has no connection with mykplan). The fund fees shocked us: 

The highlighted portion shows the comparison between the index funds in the plan and their corresponding Vanguard index funds. Investors in this small business 401k plan literally pays a very high fee (as high as almost 0.9%) to the fund companies and other intermediaries. 

Notice in this case, many of these funds are so called CIT – Collective Investment Trust. The original purpose of CITs is to allow fund managers to charge different fees for different customers for essentially the same fund. In this case, this is exactly what’s been done, except the CITs manage to charge higher fees instead of lower fees! We are sure that’s been the case for many other small business 401k plans on mykplan platform. 

High fees in brokerage sold retail funds

Retail index funds available in some major brokerages can charge high fees. We looked at this problem one and half year early in November 9, 2015: Broad Base Core Mutual Fund Review and thought to look at this again. Here is what we found: 

Though fund fees again have come down a bit, but these funds still charge much higher than Vanguard funds that track the same index. Notice that we use are using Vanguard investor share class funds in this comparison. If you have a $10,000 minimum, most likely you would be able to buy a much cheaper Admiral share class fund. 

In Merrill Edge case, when we screened out all emerging market stock funds that are available to investors, there were only 20 funds and except for the TIAA-Cref index fund in the above table (which still charges almost double), all other funds (non index funds) charge extremely high fees: from 1.23% to 2.96%! Well, efficient market still hasn’t done its job!

What to do

In 401k cases, unfortunately, you are captivated in your employer’s plan even though you can definitely move your 401k accounts in your previous jobs to IRAs or to the current employer’s. The ‘free choice’ to ‘allow (or restrict)’ a custom plan for each employer is beyond imagination: not only it adds so much burden to employers (to pick and manage a 401k plan), it makes the obscene high fees also possible. 

Take the matter to your hand, talk to your plan administrator. Remember with even 0.5% higher fee, an account with $50,000 is paying $250 extra, let alone when the account accumulates along the years. It’s your money and it’s very likely your admin’s money too. 

Also, because of the extremely low fees in index ETFs and mutual funds (plus free or near fee trade commission), there is no reason to let your old 401ks lying in an old plan. On our site, we have received so many inquiries on how to find/retrieve their ‘old’ or ‘forgotten’ 401ks. 

In a brokerage case, find a brokerage that suits your portfolio construction and avoid using those expensive funds. If you are using index mutual funds or ETFs for strategic asset allocation, Vanguard brokerage works fine because it has most index funds with low (or lowest) expense ratios and their ETFs are commission free. If you are using ETFs only and you have over $50k in your combined Bank of America and Merrill Edge accounts, you can enjoy 30 commission free trades each month. This makes very easy to utilize whatever ETFs to construct a portfolio. However, if you do want to invest in mutual funds, avoid Merrill Edge as it has a very limited choice of mutual funds. 

Market Overview

The Federal Reserve raised interest rate last week. For whatever reasons, investors drove all assets’ price up. US dollar dropped and emerging market stocks and bonds benefited most. Among US stocks, small cap stocks rose most. High yield bonds also recovered a bit. For now, the asset appreciation up trend is intact. But as always, in this extremely high valuation environment, we call for cautiously optimistic stance. 

For more detailed asset trend scores, please refer to 360° Market Overview

Now that the Trump administration is officially sworn in, the new president is facing the reality to deliver his many promises to make substantial changes. As the nation is posed to invest, the most important factor to watch is how productive the investments will be. Simply put, productive investments will result in better return on investment (ROI), tangibly or intangibly. They should also increase productivity that in turns will improve our standard of living. Capital misallocation can result in a higher growth but might not improve the real standard of living, which is the ultimate goal of economic activities. Whether the new president can truly achieve this goal is still yet to be seen. One thing is certain: we will see more market volatilities. 

In terms of investments, U.S. stock valuation is at a historically high level. It is thus not a good time to take excessive risk. However, we remain optimistic on U.S. economy in the long term and believe much better investment opportunities will arise in the future. 

We again would like to stress for any new investor and new money, the best way to step into this kind of markets is through dollar cost average (DCA), i.e. invest and/or follow a model portfolio in several phases (such as 2 or 3 months) instead of the whole sum at one shot. 

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