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Subject:  Re: to 403b or not to 403b? Date:  10/14/1998  11:10 AM
Author:  mcadoo11 Number:  6006 of 88544

doctorG, you wrote:
"...the 403b at the new institution does not provide any matching funds. While the Foolish approach would appear to provide a rate of return superior outside a tax-deferred vehicle (according to steps 3 & 4 of the retirement tutorial), I'm a bit worried about leaving the womb of taxlessness. Ergo, I've got a couple of questions:

1. Has anyone bailed on thier 401k's or 403b's, and how would you rate the transition...."

My reply:
I have recently bailed out of my 403(b) for the remainder of the year and will be putting money instead in a self-directed IRA (the $2000 that you can put in it annually). I did this because my employer has only six mutual fund options in its plan and all have performed poorly historically and this year (over the last 4 years, the six funds have performed below the S&P 500 index by over 9% around half the time). That is horrible and has resulted in our 403(b) returns lagging the S&P by 42% during the last 4 years. It clearly is in my interest to bail out of the 403(b) at this point.

Unfortunately, we do not have an index fund option in our 403(b) plan at work and several of us are working hard to change that, but it is not easy. I am sure that would be almost impossible in a university setting.

As a result, you really need to know what the options are in your plan and run the numbers for yourself. I would refer you to Robert Sheard's points on poor performing 401(k) options. As he notes, " may not be in your best interest to continue contributing to the plan." Or, in your case...begin contributing to the plan.

His article is at --

You ask:
"...if I were to adopt the Full on Foolish approach (Dow Dividend, small caps, etc.) should I put that money in to a holding pattern, like a money market account, and acquire the securities every 6 mos. to avoid outrageous friction costs, or is it better to suffer the slings and arrows of outrageous commission fees?"

My reply:
I am putting my money in my self-directed IRA in a no-load, low fee index fund. When it has gained enough (approximately $2000), I will either make another Cash-King purchase (I am currently watching CSCO, SGP and KO) or up my ante in the RP method (see the Foolish 4 message boards).

You ask:
"...would a hybrid plan, such as dividing funds between the 403b, IRA, and taxable securities, or is that just being a sissy?"

My reply:
That is exactly what I am doing dammit! ;-) I will continue to contribute to my 403(b) in the future up to that point when they stop contributing and continue to try and get some changes made to the plan. I also have my self-directed IRA (my fun Motley Fool dollars that are up 10%+ this year compared to the 17% loss my 403(b) has experienced).

And finally, my children hold the taxable securities as part of their college fund. By the way, can you figure a way to make that experience a little cheaper for those of us trying to save and pay for it 15 or so years down the line?!

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