[rdegges]

I'll be the first to admit that I don't know too much about investment, but isn't the typical advice to pretty much ONLY put your money into the Vanguard Target funds based on your year of retirement?

This is some relatively widespread retirement knowledge, and is frequently referenced by the likes of r/personalfinance, r/investing, etc.

How does Guideline somehow out perform Vanguard who's been the king of this forever? Serious question.

[nordsieck]

They're talking about 401(k), not IRA, which means it has to be managed by a custodian on top of what ever fees a fund charges.

Guideline is trying to be the Vanguard of 401(k) custodians.

The second hand info I have from a startup (that I worked at) negotiating with a 401(k) provider leads me to believe that are basically 2 common 401(k) setups in the industry.

In the least bad case, the company pays a bunch of money to the custodian in exchange for the custodian giving the employees access to good funds (vanguard institutional shares).

In the more bad case, the company pays the custodian nothing, and the employees only get access to funds that kick money back to the custodian. As you might be able to guess, these funds typically have quite high fees.

[saryant]

Isn't Vanguard already the Vanguard of 401k custodians?

(My 401k is managed by Vanguard)

[nordsieck]

Huh - I hadn't realized they were. Most of guideline's copy focuses on low prices, so I assumed that that's an effective way they could differentiate themselves.

I think the important thing to understand about this space is that a custodian is required by law, and that their fees they take are (conceptually) separate from the fees your funds charge.

[busque]

Hi I'm the founder. The copy is not meant to focus on low prices, but rather low expense for the participant. I understand that might be coming through. You are correct on the custodian fee, that is a pass through and having a custodian is great! Appreciate the feedback!

[tanderson92]

Not for solo 401(k) users; that would be Fidelity. Vanguard doesn't allow access to the lower-cost Admiral share classes for solo 401(k)s.

[busque]

Incorrect info here. We are not trying to be the custodian in any way. It's actually quite important that the custodian is separate and that is why we did not bring that service in-house.

[kikowi]

Im European so I don't know much about the retirement plans, but as I see it, the costs are the biggest issue here. Mutual funds rarely outperform index funds, so why not just stick with the passive index funds that have substantially lower costs & can be traded like stocks on the market (anyone can buy them)?

[mcherm]

In the US system, money which goes in certain sorts of retirement plans (like a "401k") is not subject to income tax (at least not in the same way as the rest of your income). But the definition of a "401k" plan requires that you can NOT control the money and make the investments yourself. Instead, you must pay someone else (the "401k plan provider") to control the money for you (typically they offer a small selection of investments and let you pick how to allocate your money among those, then they invest it according to your instructions).

These 401k plan providers charge fees. Typically fairly substantial fees (like 1%) and typically the fees are well-hidden. By "well-hidden" I mean that it probably takes a knowledgeable researcher months to find out what the fees are -- I've certainly never known the fees for any plan I've ever had.

This startup purports to compete by charging fewer fees 401k plan provider fees.

[lewisl9029]

I'm wondering, is there such a thing as a self-directed 401K where you can control exactly your 401K money goes? If so, would employer matching work for these self-directed accounts as well?

[astrange]

There are some, but you wouldn't be able to buy shares in the better classes of mutual funds, like Vanguard InstlPlus. Those rely on the whole company buying the same shares to meet the minimum investment requirements.

[Retric]

My last company had a 50$ per year option that let you buy and sell any stock or few thousand mutual funds. Funds where low cost so it did not seem worth it, but YMMV.

[spacecowboy_lon]

Why is that? in the UK a SIP (Self Invested Pension) can invest in almost anything even direct investments in commercial property are allowed.

Sounds like the USA's Openednded mutual funds are even more dodgy than the uk equivalents (unit trusts)

[idunno246]

i've worked for a company with a plan that offered something like this, however there was an additional fee on top of whatever the costs were. And like the sibling comment says, you get the public etfs, which wont get any bulk savings(oh how i miss my 0.02% ER institutional shares). You are unfortunately still stuck going through the company the employer chose. Very rarely you can get a plan that allows you to roll over while still employed, so if you did that say, annually, you could self direct then.

employer matching was separate, you and the employer add money, then you choose what to do.

IMHO, 401k should go away and the deductible limits on IRA should be raised to compensate and let people do their own thing.

[busque]

Hi I'm the founder of Guideline. I just want to be clear in regards to Guideline pricing. There are no additional fees. We are 100% transparent.

[idunno246]

Oh, does "this" in the first sentence read as guideline? I meant it as, I had a plan with a self directed option, basically direct access to their full brokerage. Didn't think you had any additional fees

[disillusioned]

Yeah, some plans offer self-directed brokerage options, with an administrative fee on top of things. Otherwise, with, say, Employee Fiduciary (one of the dirt cheapest Vanguard-backed administrators out there), we chose 40 funds to offer our employees, though almost everyone has just stuck with the Vanguard Target Date options.

[loeg]

> Guideline is trying to be the Vanguard of 401(k) custodians.

Vanguard is customer-owned, while Guideline is not. That is an important distinction, regardless of current low fees.

[Ntrails]

The default advice should probably be that, but if you look at the old Defined Benefit schemes there are very good reasons that they diversify away from pure equity/bond splits to grow their assets. In fact you should look to the large endowment funds too in terms of what a best practice asset distribution looks like.

The "stick it in a low cost tracker" model is fine, and in instances where you get shitty access at shitty fees makes excellent sense. However, Property/Reinsurance/etc are good sources of return which do not correlate as strongly to markets in general (Although property at the very tails tends to).

The Aussie super-fund stuff is interesting reading for this stuff as they manage to get the economies of scale required to make access to alternative betas vaguely affordable.

[dahdum]

They do use Vanguard funds, they charge $8/month per employee to the employer to handle the 401k, and the employee pays:

Avg. fund expense of 0.10%

0.03% custodial fee

Seems like a great choice for a business.

[ucaetano]

Vanguard funds have on average 0.18% expense, with the industry having much higher than that. How do they use Vanguard funds?

[boulos]

Not all the funds are that high. The .18% vanguard quotes is their real, across customers, result. Their more active funds are higher (like VEXPX at .49%) while their larger scale Admiral funds are often as low as .05% (like VTSAX).

Vanguard ETFs offer the same rates as the equivalent Admiral class shares, so services like Wealthfront use those. Wrapping Vanguard is a lot easier these days ;)

[loeg]

Institutional class expense ratios are much lower than 0.18% average. Also, they can pick the lower cost funds.

[idunno246]

how does that compare to other fees all in? Obviously the employee cost is really good, but is the typical 1-2% employee fee company just passing that $8 onto you? Especially in lower paying companies, that could add up

[ucaetano]

$8/month = $56/year, divided by Vanguard's 0.0018 equals $31k.

So if the employee has in his 401k:

- $20k, the equivalent fee is 0.41%

- $50k, the equivalent fee is 0.24%

- $120k, the equivalent fee is 0.18%

- $200k, the equivalent fee is 0.16%

- $1M, the equivalent fee is 0.136%

[samb1729]

Could you elaborate on how you got those numbers? You lost me at $56 but I don't understand your percentages either so perhaps I'm missing something here.

[ucaetano]

Percentage = [(56/Capital) + 0.13%]

56 = cost to employer

Capital = how much the employer has in the 401k

0.13% = average fund fee

So if Capital = 200k

Percentage = [56/200k + 0.13%] = 0.028% + 0.13% = 0.16%

My guess is that they're focusing on new plans, not allowing rollover from previous plans and not allowing employees to keep the plan after they leave the company. In this situation they're able to have mostly savers with low or very low balances, and they charge on average higher fees than Vanguard and others.

[mercutio2]

$8/month = $96/year, not $56.

[ucaetano]

Correcting myself, it's $96, not $56. That bumps up the fees a bit. Sadly, too late to edit it.

[thedufer]

8 * 12 is 96, not 56.

[ucaetano]

Ha, good catch, a typo and lack of sleep propagated through the numbers :)

[busque]

Hi I'm the CEO of Guideline. This is a common misconception. It's actually the topic for my next blog post. Target Date funds are just funds of funds. Your paying nearly twice the expense ratio for the same underlying funds. They charge the extra fees because they change the fund allocation for you as you age.

[gmnash]

I am looking forward to this upcoming post about why you decided to avoid target date funds. Specifically I am curious how you calculate that target date funds have nearly twice the expense ratio compared to guideline. VFIFX (https://www.google.com/finance?ei=CWOOUpC2CO-bsgfSRw&q=VFIFX) has an expense ratio of 0.16% while guidelines is 0.13%. Cheaper, yes, but not twice as cheap.

[loeg]

Even in the retail segment, the target date funds don't have "Admiral" options. So you see 0.16% with VFIFX, 0.05% with VTSAX, 0.12% VTIAX, 0.06% VBTLX.

A 3-fund of VTSAX/VTIAX/VBTLX can average around 0.08% for the same underlying asset allocation as VFIFX at 0.16%. That's roughly double.

[wtvanhest]

I'm not an expert on Guideline, but most 401k plans have preset vendors so you might not have the option for vanguard at all.

[busque]

Yeah, that's not the case for us. We do have Vanguard funds amongst other low-cost mutual funds. We also have our own investment committee which evaluates and adds funds as appropriate. We have no fund relationships and do not make commission.

[loeg]

The target funds have higher fees and are less tax friendly for non-retirement accounts. In a 401(k), if they have low institutional fees, sure.

Basically, with component funds, you can always implement a target date glide path. You can't get the component funds usefully out of a target date.

[cloudjacker]

"Balanced" - We are going to underperform both the stock and bond market for you simultaneously