Hey everyone, it’s Finance Fridays again. Today will just be a short post about “Keeping up with your Retirement Accounts”.

Keeping up with your Retirement Accounts

I’ve talked a bit about my own investment portfolio.

Not much has changed, but it’s a good idea to try to keep up with any new changes to your accounts. For example, in my wife’s 457, because there were no great options, so I opted to just go with Vanguard Wellington, which is blended fund. However, it’s expense ratio is higher than my usual picks which are of course Vanguard Total Stock Market (VTSAX) and Vanguard Total Bond Market (VBTLX).

However, we recently received notice from the 457 that they are going to be decreasing the gross expense ratios of the their Vanguard Lifecycle Funds to 0.09% across the board. Previously, the expense ratios were 0.38% and 0.55%, which is why I didn’t use them.

In general, I’m not a huge fan of “target” funds. The reasoning behind it is because I rebalance my portfolio every year, I don’t really need to use one and they usually have higher expense ratios.

However, as I’ve said before, this 457 account doesn’t have that much money in it and we can’t contribute anymore to it. So I think it’s fine to consider it a “far off” fund meaning we could set it for Target Date of 2050 or something like that. With the decrease in expense ratio, it make sense to go from Vanguard Wellington (0.17%) to a Vanguard Lifecycle 2050 fund (0.09%).

Hmm… does it really matter?

You’re right. In the grand scheme of things, this probably won’t make a huge difference. As I’ve stated before, what really matters is to keep your money in index funds, keep contributing, and stay the course. However, in this particular case, both funds are still within the realm of my grand plan for retirement, so I might as well go with the cheaper option. We’re talking 0.08% difference, but it’s still a difference.

Imagine something similar for your own larger 401k, one in which you plan to accrue $5 million by the time you retire. You can imagine that going from a fund with a 0.55% expense ratio to one with 0.09% expense ratio will make a difference over a long arc of time. I’m not even talking about the more actively managed funds with 1% or 2% expense ratios or paying an Assets Under Management (AUM) fee which could be another 1% or 2%.

Just remember, these little percentages compound with time as well. The lower these expenses, the better your compound interest. Think about it this way, would you prefer to make an average of 7% interest a year or 6.5% or 5%? In one year it won’t make a huge difference, but over 30 years, the difference is pretty large.

Long story short, it’s ok to make a few tweaks to your portfolio, as long as your overall plan is the same. It’s also probably a good idea to have you plan written down somewhere so you don’t forget what it is. There are plenty of articles about making an investment plan, but the long and short of it for doctors is really just all in The Checklist.

To be honest, I’ve never written an investment plan down, since my investment plan is kind of all over this blog. However, it’s probably a good idea that I sit down and write a concrete one up to share with everyone.

TL;DR

A little tweaks here and there are ok, so keep an eye on any changes to your retirement accounts.

However, don’t stray from the plan. Stay the course.

Having an investment plan is a good idea.

I’ve never actually written one… but I’ll write one up for everyone next week as an example.

-Sensei

Agree? Disagree? Questions, Comments and Suggestions are welcome.

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