401K Allocation

Looking inside my 401K portfolio. I plan to max it out this year. I looked at Jeremy’s post on “How to pick 401k investments” which was helpful, however, I have a few questions. My Target date fund has a expense ratio of .93 which is poor. The fidelity 500 option has an expense ratio of .02. Where do I go from here?

Also–this seems silly but I am seemingly unable to find the answer. Are target date index funds and a single target date fund the same thing?

Hi @Elizaberry!

To answer your second question first, a “target date index fund” is an index version of a target date fund. But “index” is not always in the name, so it can be confusing. The non-index version takes an active approach (higher fees and trys to outperform the market, but usually fails) and the “index” one takes an index approach (lower fees and delivers the return of the market). PFC is a fan of the index version since the fees are lower!

For your first question, that 0.93% fee you mentioned is very high unfortunately. Does your employer offer a match? Are there any low cost index funds offered in the 401k? Even if there are no low cost funds, I’d follow the check list below and contribute up to the employer match and then use a Roth IRA as well.


Thanks for the helpful reply. They do offer a 4% match. Fidelity 500 is offered.

An aside, I have already maxed out my Roth IRA this year, so I am back to step 4. I just don’t quite know if I should be self-diversifying through choosing a combination of bond and stock (in this case, index fund) options (i.e. 90% stock, 5% bonds). I was attempting to front-load my 401k by putting 100% of income in there until I reach 20,500 to achieve maximum tax benefit, I just want to make sure I am not putting that money in a bad pot. Does that make sense? Generally the question is should I forgo the Lifetime option and attempt to diversify within my 401k through using Fidelity 500 and US Bond index fund, for example.

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Awesome, thank you for that background! I love to hear that you are maxing out a Roth as well! That’s excellent!

Either sticking with the target date fund or building the 95/5 portfolio are both good options. It can be a personal choice. Investing in the Target Date Fund is not a bad option, even though the fees are higher since the target date fund offers simplicity. The pro of the two fund portfolio is that it’s significantly cheaper.

My preference would be the index funds since those are meaningfully cheaper. But, again, it’s a personal choice since both options can work!

Keep me posted if there are any other questions!