Q. My husband and I are putting $5,000 each in our Roth IRAs. They are with Vanguard and we are using the Couch Potato method. I also have a 401(k) account with my job and I only put enough in for the match. I put in $83 a month. My agency puts in $83. The problem is that the 401(k) plan choices are terrible, with lots of fees. I'm wondering whether I should be doing this at all. The plan is with an insurance company and the fund that I chose is the BlackRock Lifepath 2030. I've thought that it was a good thing to do, because I'm getting a 100 percent match on my $83 investment. Am I right? —A. H., Dripping Springs, TX
A. According to data in the Morningstar database, the issue with BlackRock Lifepath 2030 (institutional shares) isn't their annual expense ratio, it is their performance. The institutional shares have an expense ratio of 0.85 percent a year (other share classes have different, and higher, expense ratios). That's fairly typical for such funds, but higher than comparable funds offered by Fidelity and T. Rowe Price. The performance figures, however, have generally been in the bottom half of the category.
Even so, as long as you collect a 100 percent match, you are likely to do better staying in your plan than looking for greener pastures. Let's hope that your employer will start to realize that using match dollars to compensate for poor fund performance isn't what matching dollars were meant to do. If your plan has a brokerage window alternative you may be able to create a better option for yourself by using a lower cost index fund or exchange traded fund alternative. This would allow you to capture the match and have a better investment option, too.
Q. A number of years ago we put all our investments with Vanguard. We have been extremely happy, and still are, but with current financial situation are wondering if we should make some changes. Here is our situation: I am 80, my wife is 79, we have no debts, paid cash for our house 25 years ago, and retired 19 years ago. I guesstimate the house is worth a bit under $200,000 in today’s. Our investment portfolio with is worth about $826,500. Both of our IRAs are in Wellington fund and total about $413,300. Our taxable joint account is divided between $283,200 in Wellington and about $130,000 in Vanguard GNMA.
Given those figures, it seems that we might be too heavy in bonds at this time. We don’t have any kind of pension income. We have a good income from Social Security and the Required Minimum Distributions from our IRAs. When we want something extra we make a call and sell some shares.
The most recent withdrawal from our IRAs was about $10,000 for me and $6,000 for my wife. That money gets put back into our joint taxable account, to be spent early this year for taxes, travel and other expenses. Any comments would be appreciated. —P.C., Garland, TX
A. Vanguard Wellington fund has about 38 percent of its assets committed to fixed income. So if we do the math and add that portion to your GNMA fund holding, about 48 percent of your $826,000 in financial assets is invested in fixed income. Your two low-cost funds with 5 star ratings from Morningstar have beaten most of their competition for more than 15 years. So what you have presents a good case for "If it ain't broke, don't fix it.”
While some financial planners would suggest that you reduce the portion of your assets in equities, I doubt that the reduction would be very much. Either way, many planners would also suggest that you create a "cash cushion" by redeeming some shares in both funds and keeping some money in cash. It won't earn anything, but it would be available immediately if you had an emergency.
One of the really nice things that you've done is to keep your financial life simple. One of the biggest problems with aging is that financial management can be too complex.