I’ve shared my written financial plan as well as my stock and bond investment portfolios. However, I realized the other day that I haven’t yet given an in depth review of my actual 403b investment account.
…Like my actual account brokerage…
…And actual investments selected…
…And performance since I started it..
So this should be fun!
A quick review of my written financial plan
The following is taken directly from Selenid’s and my written financial plan (the entirety of which you can review here):
Equity Asset Allocations
- Maintain an 80/20 stock/bond allocation, decreasing progressively to at least 60/40 by retirement
- Our primary asset classes will be domestic stock mutual funds, international stock mutual funds, and US Government bond mutual funds
- Our equity allocation will include domestic, international, and emerging market stocks and large-cap, mid-cap, and small/micro-cap stocks.
- We will also allocate a percentage to REITs and other alternative asset classes if they promise diversification benefits and solid long-term returns
- For the most part, these will be broad total market index funds, but they may be supplemented by small amounts of value index funds as needed to maintain a slight value tilt.
- Our bond allocation will be split 50/50 between nominal bonds and inflation-indexed bonds in tax-sheltered accounts as much as possible.
- We will use the G fund as much as possible
- Rebalance 1x each year (July) by buying more stocks/bonds as dictated to maintain goal allocation
- 40% US Stocks
- 35% International Stocks
- 5% REITs
- 10% US Bonds
- 10% TIPS (Inflation indexed bonds)
None of this has changed since we first created our written financial plan about two years ago.
With that in mind, let’s jump into the weeds with my actual 403b investment account…
In depth review of my 403b investment account
First, some basics…
- My employer offers a Defined Contribution Plan or a Defined Benefit Plan (pension)
- I chose a DCP as I preferred to invest my own money and terms were in general better
- The 403b investment account is through my full time hospital employer
- My employer offers a match of 8% of my compensation
- My brokerage options for the account were:
- Voya, or
- Fidelity Annuity
- I knew I didn’t want an annuity so that ruled out the Fidelity option. Would have been great to have a traditional Fidelity option available but alas, it isn’t to be
- Reviewing options, it quickly became apparent based on funds available and expense ratios that TIAA was the best
- So I chose TIAA as my plan administrator
Once this relatively straight forward decision was made, I next just had to go through the TIAA fund options and choose some based on my asset allocation…
My 403b investment account funds
Here are the investment funds that I selected based on my asset allocation (% of overall portfolio in parentheses):
- TIAA Access Vanguard 500 Index T1 (30%)
- (My small value tilt) TIAA Access Vanguard Small-Cap Value Index T1 (10%)
- TIAA Access International Equity Index Fund T1 (35%)
- CREF Inflation-Linked Bond R3 (10%)
- TIAA Access Vanguard Total Bond Market Index T1 (10%)
- TIAA Real Estate REIT (5%)
Going a bit deeper into my fund selections
It may seem like the selection process for these funds would be difficult. But it’s not.
And that is the beauty of a written financial plan. We created our plan well ahead of actually needing to select these funds. So once the time came to select the funds, I just looked through the options for those that fit my asset allocation.
If there was more than one option, I just looked for the one that best mirrored the actual index I wanted to track and for the lowest expense ratio.
- To assess a fund’s actual fidelity to its supposed index, I check on Morningstar and also look for a low turnover ratio (Remember, index funds should not have high turnover ratios – if they do, they are not an index fund)
- And for the lowest expense ratio, I just look for the smallest number
In all, this 403b investment account was the first time I ever chose actual investment funds. And the process took my about 25 minutes. I imagine it would have been way more stressful without our written financial plan….seriously, consider creating one for yourself if you haven’t…you can use mine as a guide…
With this said, I’ve listed below the targeted index, turnover ratio, and expense ratio for each of my selected funds:
Format: Selected Fund – Target Index – Turnover Ratio (TR) – Expense Ratio (ER)
- TIAA Access Vanguard 500 Index T1 – S&P 500 – TR 0% – ER 0.14%
- The TIAA Access Vanguard Small-Cap Value Index T1 – Total Small Cap Value Stocks – TR 0% – ER 0.14%
- TIAA Access International Equity Index Fund T1 – Total International Stocks – TR 5% – ER 0.15%
- CREF Inflation-Linked Bond R3 – Overall TIPS – TR 25% – ER 0.18%
- TIAA Access Vanguard Total Bond Market Index T1 – Total Bond Market – TR 0% – ER 0.14%
- TIAA Real Estate REIT (5%) – Total Real Estate Market – TR N/A – ER 0.87%
So how did I do?
In self analysis, I am pretty happy with how I was able to construct my 403b investment account.
Overall, I was able to select funds that matched the indexes and markets that I wanted to mirror based on my asset allocation. Turnover ratios were relatively low for all except the inflation indexed bond fund at 25%. However, this was the only inflation indexed bond fund available and I deemed the associated risk to be acceptable.
In terms of expense ratios, all are acceptably low and less than 1%. But that’s a pretty low benchmark. You should pretty much never have a fund with an expense ratio >1%. In fact, all but one of my selected funds (TIAA Real Estate) have ERs less than 0.2%. Ideally I would like them <0.1%.
However, these were the best funds available to me in this 403b investment account with an awesome employer match. And 10 basis points is not worth quibbling over to not invest in the account at all.
This is a sneaky important point. Sometimes investors get caught up in minutia like the difference between a 0.18% and 0.08% expense ratios. While the 0.08% is obviously better, if you don’t have access to that fund in your retirement account, it doesn’t matter! Tax protected investing with a match is way more important than the difference of 0.10% in ER! Keep it simple…
And for the real estate fund, that is the only REIT available to me in this account. So I accepted the higher expense ratio as the price of diversification in this account.
My 403b investment account performance
So, how did I do over the past 1.5 years or so…
- Overall, personal rate of return is 3.9%
It’s here that I should lay out an important qualifier. For the first year or so of contributions, my money was placed in an escrow account making a fixed rate of, I think 3-4%.
After this, the money got released into the TIAA account. Hence the rough estimate of my “time in the market.”
Anyway, let’s dig even deeper…
Year to date returns of each fund:
- TIAA Access Vanguard 500 Index T1 = -5.5%
- (My small value tilt) TIAA Access Vanguard Small-Cap Value Index T1 = -3.67%
- TIAA Access International Equity Index Fund T1 = -7.59%
- CREF Inflation-Linked Bond R3 = -2.53%
- TIAA Access Vanguard Total Bond Market Index T1 = -7.94%
- TIAA Real Estate REIT = +5.77%
Sooooo…they all stunk! Every single one of my funds, except the REIT, actually lost value.
What does this mean and what do I do?!
Short answers first: Nothing and nada, respectively.
What does this mean? Well, my money in the 403b investment account entered the market near the beginning of a downturn that is still happening. It is what it is. It’ll go up in the future. And for now, each contribution I make every 2 weeks is buying stocks and bonds that are on sale!
And what do I do about it? Ab-so-lut-ely nothing. Repeat it again…absolutely nothing!
I am investing for the long term. I created this asset allocation for the long term. And that means that I don’t care about short term market volatility. In fact, some of the stocks and bonds that I buy now will end up likely being most valuable to me by the time I reach financial freedom and retire.
In other words, keep calm and invest on.
Oh yeah…the only thing I will do actually is to keep ignoring the markets and then, come July, I will rebalance back to my original asset allocation…
Well, there you have it!
All the inside details about my 403b investment account. And remember, at this point, my 403b is my main equity (stock and bond) investing account.
That is largely because of my commitment and belief in a hybrid investment plan including real estate investing.
And for the debaters, help us decide whether a 401k/403b or real estate investing is better!
What do you think? How did I do in my 403b account? What funds are in your retirement accounts? How do you react to the markets? Let me know in the comments below!