Where do we invest?

November 8, 2012 2:48 PM

Trying to decide where to put our money. Wife changed her job. Should we roll her investments into her current new 401K company Charles Schwab for convenience or into Vanguard? We are interested in investing in Index Funds for the long term.
posted by damiano99 to work & money (13 answers total)

Watch out (if you even can) for opaque/hidden fees, commissions, or other costs in company-sponsored 401(k) plans. If you want to invest in low fee index funds, sometimes a plan offers an SDBA (self-directed brokerage account) option that will let you avoid the types of funds that have those nasty "managed" investment costs. Those costs can take a huge chunk out of your return.
posted by Dansaman at 2:52 PM on November 8, 2012

My personal experience with Charles Schwab has been overwhelmingly positive. They have excellent US-based customer service who are easy to get on the phone. I don't have a 401K with them, however.
posted by jillithd at 2:54 PM on November 8, 2012

I use Vanguard for my IRA and my work uses Fidelity for 401k. I found that the fees at Vanguard where *much* lower for the same product (largely index funds).

One of the other reasons I rolled my last 401k into a Vanguard IRA was that Vanguard has certain funds that have even lower fees if you have a certain level of money in your investment. At a max of 5k/year for IRA it was going to take me a long time to get up to that level but by rolling in my 401k (17k/year over several years) I was able to hit that target and pay even lower fees.
posted by lucasks at 2:55 PM on November 8, 2012

In the interest of accuracy (these are very important decisions people are making with potentially huge financial impacts), I have to correct the information lucasks provided. Fidelity has very aggressive costs for some basic index funds that match or even beat Vanguard. I'm a Vanguard fan, but for example, Fidelity Spartan Total Market Index Fund expense ratio is 0.10% whereas Vanguard Total Stock Market Index Fund is 0.18%. Fidelity lowered some of their fees several years ago, apparently to compete more effectively with Vanguard.
posted by Dansaman at 2:59 PM on November 8, 2012

Yes, I think the point about comparing fees is key here. However, just a data point on the above, I find that Vanguard also has great customer service every time I have had to contact them, and they have a great online interface where you can conduct almost any transaction with relative ease. Fidelity definitely does not compare with the Vanguard online interface right now (I just rolled a 401k away from them).
posted by treehorn+bunny at 3:02 PM on November 8, 2012 [1 favorite]

Schwab runs their own index funds that often have even lower expense ratios than Vanguard or Fidelity, down to 0.09% for their S&P and total market funds. Those funds also have super low minimums ($100, IIRC) and no fees.
posted by theodolite at 3:08 PM on November 8, 2012

A lot of Vanguard funds have a lower expense ratio once you have $10,000 invested in those funds (they call these Admiral Shares, lower than $10,000 is Investor Shares). For example, I have Vanguard 500 Index Fund Admiral Shares in my Roth, and the expense ratio is .05%. Before I hit the Admiral Shares threshold and was instead invested in Vanguard 500 Index Fund Investor Shares, the expense ratio was .17%. Vanguard will automatically upgrade you to Admiral once you hit the $10,000 mark. I would highly recommend them.
posted by jabes at 3:09 PM on November 8, 2012

For an interesting read on the perils of dealing with the investment industry, and to make sure you become skeptical enough to become a "smart shopper" for financial services in general, including your current situation, I suggest reading The Big Investment Lie.
posted by Dansaman at 3:15 PM on November 8, 2012

There is no benefit to rolling a 401k into your new company's 401k. If you roll it into a self directed IRA, you can do so for free and trade as you wish. Do that.
posted by bensherman at 3:15 PM on November 8, 2012 [1 favorite]

There is an advantage to rolling it into your 401k if it's managed, and if you think it's likely that you won't manage an IRA yourself or hire someone to do it. If you have the wherewithal and inclination to pay attention to your account at least once ever 3 months or so, then an IRA is the best way to go.

I have had wonderful experiences with Fidelity and Schwab and some truly terrible ones with Vanguard, just to add to the anecdata.

If there is anyway to make you notarize, signature guarantee, or some other aggravating BS for a basic change to your account, or transfer out, Vanguard will find a way to make you do it.
posted by small_ruminant at 3:36 PM on November 8, 2012

You only have one chance to get your 401(k) money in your own hands and out of the hands of your employer and that is when you terminate your old employment. Regardless of what you think about Schwab now, you have no control about which custodian your new employer might choose in the future.

I would recommend rolling your old 401(k) into your own self-directed IRA. Then you have endless choices, which include Vanguard, Schwab and Fidelity. Otherwise you are at the mercy of your new employer's whims for as long as you continue to work for them.

There is one consideration that might suggest leaving your money in your 401(k). If you are in an income bracket that puts you above the limit for contribution to a deductible IRA or a Roth IRA, you can take advantage of a current loophole in the tax code that lets you do what is referred to as a backdoor Roth IRA. You contribute to a non-deductible traditional IRA and then immediately convert that to a Roth IRA with no additional taxes forever. You cannot as easily do this if you have a traditional IRA rolled from your 401(k), because you must pro-rate your Roth conversion based on the total pre-tax contributions in the sum of all IRAs. 401(k) rollovers count as pre-tax contributions so Roth conversions would not be tax-free. It is not clear how long this loophole might last.

So you might want to weigh your two alternatives -- the flexibility of having your investments under your own control vs. the potential for backdoor Roth IRAs.
posted by JackFlash at 4:09 PM on November 8, 2012

I'm another vote for "you can't do it." A 401k plan can only be rolled over to an IRA, not to another 401k plan. (All of us are assuming that "her investments" are in a 401k plan.)

I like the idea of creating a new Schwab IRA to hold them. The convenience of one web site to review both accounts is nice. And I will echo jillithd on its customer service. I had an occasion to call them a few years ago. (I'm pretty low-maintenance.) I called the 800 number on a Saturday afternoon and I reached an actual live human being based somewhere in the United States.
posted by yclipse at 6:32 PM on November 8, 2012

Nthing the vote for Vanguard. I would check to see if you get any benefit for the total $ invested at Schwab - you might find their fees / commissions / expense ratios will decrease if you reach a specific threshold in total amount invested. This threshold might be easier to achieve if you have all of your money at Schwab...

Don't forget ETFs as a low cost indexing option - Vanguard ETFs trade commission free to Vanguard customers and have very low expense ratio (same or better than the admiral shares mentioned above...)
posted by NoDef at 7:07 AM on November 9, 2012