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I am a 24yo who started investing in my 403(b) account 1 year ago through a Valic Retirement Account. My current assest allocation is:
Large Cap Growth 40%
Mid Cap 20%
Sector 20%
"Foreign" 20%

With the Funds being:
American Century Ultra Fund
Putnam New Opportunities Fund
North American Midcap Index Fund
NA-T.Rowe Science and Technology Fund
Templeton Foreign Fund

Valic offers a wide variety of funds and my 403(b) will most likely be my primary retirement account (possible a Roth IRA if there's extra money lying around).
I have a high tolerance for risk since this is money will not be touched for 30 years so i would like to know what is the best way to allocate this account? Should i break it down even more or should i keep with the present 20,20,20,20,20 but with Growth and Value funds?
Also some people suggested i not max out the 403 because i do not get company match, and instead invest in a Roth IRA (using an index fund like VTSMX).

If anyone has a suggestion, please feel free....

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Pjrn77:

Congratulations on making the initial decision to invest for your future. The funds you have chosen are good funds, and (in my opinion) positioned well for the long-term. I would encourage you to do a Roth IRA (and your spouse if you are wed). The Roth's flexibility to address such events as college funding (removal of cost basis) is reason enough.

I do wonder why you have chosen Valic. Valic uses a variable annuity to wrap around the 'fund' choices. While this does include a death benefit, it is redundant use of tax deferral; for which you are paying. Are there no other choices besides an annuity?

--WauseonFox--
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pjrn77,

I am in the same boat (27 years old) as you. In addition to the previous comments I would add the following. You mentioned the following mix:

Large Cap Growth 40%
Mid Cap 20%
Sector 20%
"Foreign" 20%

I think that it is appropriate to add pure small cap (median market cap of < 2.0 billion) in addition to diversifying the large cap growth position by adding large cap value. The portfolio you describe would be very heavily weighted toward large cap stocks and those that move in a similar fashion (mid cap). If you examine the stocks that your funds own I would bet you would find quite a bit of overlap and this defeats the idea of diversification. The sector fund will probably fall into the large cap category as well.

A pure small cap fund will be volatile, but should add some return to your portfolio over the long term. Growth and Value style investing has performed similar over long periods of time and adding a value position should help your volatility. My suggestion and my portfolio looks like the following:

20% Large Cap Index Fund
20% Large Cap Growth (Managed)
20% Large Cap Value
20% Foreign
20% Small Cap

In reference to your question of whether or not to fund the 403b or Roth IRA, I think you should fund both if possible. The trade off is either lowering your taxable income today (403b) or tax-free accumulation (Roth). Another advantage to the Roth is that you have the choice of investment. If you do not have a good small company or intl fund choice in your 403b, you could fund that with a Roth. If you are in a relatively low tax bracket today, my opinion is that the Roth has a lot of positives.

That is my view. I would be interested in others response.
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Hello pjrn77, I assume you're a nurse working for a hospital, and the retirement plan they offer is a 403b plan through VALIC?

Well, my wife had a similar set of circumstances. We married and I began researching her plan and it's offerrings. I was not impressed with VALIC; they have high fees, average performance, unfavorable plan rules, and their customer service wasn't very, well, customer friendly. We stopped contributing to that account, and chose a Roth instead. We determined we could find an investment(s) with lower expenses using a Roth more so than with the funds in the 403b plan. Similar to your idea of using VTSMX. Here are a few links on 403b plans and the annuities they usually offer:

http://www.fool.com/retirement/annuities/annuities01.htm
http://www.fool.com/retirement/retireeport/2001/retireeport010611.htm
http://www.mutual-funds.com/mfmag/archives/2000/february/403bstgy.html

And a great article on the comparison between a 403b and a Roth IRA:

http://www.403bwise.com/story403bvsroth0901.html

One of the other main issues here is also taxes. The 403b will provide you with a reduction in current taxable income, allowing a tax break of sorts now. If a tax deduction is more important at retirement, funding a Roth IRA should be your first step. These next two links provide another view of the tax aspect of this decision:

http://www.fool.com/Retirement/RetirementStep4.htm
http://www.fool.com/retirement/retireeport/2000/retireeport001023.htm

A good website, www.403bwise.com , has lots of useful info on these plans. I recommend researching there.

One other issue to consider with these two accounts is their funding limits. For 2002, one can fund a 403b plan with up to $11,000, and $12,000 in 2003. One can "only" fund a Roth with $3,000 in 2002, and that amount is the same for 2003. So, if one plans to contribute say $10,000 to a retirement account, maybe a Roth first, then the remainder to the 403b plan might work for you. Just wanted to provide you with other food for thought on the matter.

HTH

Bookm


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Thanks for all the resources. When did you get out of Valic? I asked the Valic advisor about fees, and he told me that there were none through the 403(b) that i had to pay. Could this be true? I had a choice between Valic, Fidelity, and Tiaa-cref when i first opened my 403(b) through my hospital. I chose Valic because the advisor works within the hospital and he is very easy to get in touch with. However, is it possible for an employee to go with any company on a 403 such as Valic, Or does the employee's hospital have to set up a contract with the company? I will be working at this hospital for at least another 3 years, but not permanently, so i will probably leave my money with Valic. They really have increased the amount of options a person can choose from. That causes me problems because i can't figure out what is best for my account.
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Hello pjrn:
Thanks for all the resources.

Don't mention it. That's what we're all here for; to learn and help each other.

When did you get out of Valic?

My wife stopped contributing a little over a year and a half ago.

I asked the Valic advisor about fees, and he told me that there were none through the 403(b) that i had to pay. Could this be true?

Well, I looked through all the pamphlets and prospecti that VALIC distributed to plan participants last year, and I saw FEES. I'm at work and I'll be out of town for a few days beginning this afternoon, so it may be a while before I can get back with the exact fees involved, but if they distributed a prospectus or three to you, take a look for yourself. I know the reading is boring, but there are different sections in the prospectus that discuss the different expenses involved with VALIC. IIRC, in the first few pages each fund's expenses are disclosed. Then comes the account maintenance fees. As I said, I still have the booklets, but it's been a while since I looked at them, so I can't recall what each fee is specifically called.

I had a choice between Valic, Fidelity, and Tiaa-cref when i first opened my 403(b) through my hospital.

Most participants of a 403b plan through TIAA-CREF have pleasant things to say about their plans. In fact, they and Vanguard are usually well-regarded here, from what I've read in some posts on the message boards.

I chose Valic because the advisor works within the hospital and he is very easy to get in touch with.

But help me understand what's so important about that? What is he providing you in person that can't be done over the phone? He's not selecting mutual funds for you, is he? I know that some investors require more attention and assistance than others, and elect to use a full service broker (and pay dearly for it, mind you). Might this be the case with this "advisor"? IMHO, there really isn't much to gain from his that you couldn't accomplish with a little due dilligence, if you're willing (and being at the Fool, I assume you are).

If you're able, I would look into having your plan with TIAA-CREF. Call them up, explain the situation, and allow them to explain if it can be done. You ask the VALIC person, and they may deter you from this by giving one reason or another. But, as you said, if the hospital gave you the option of VALIC, Fidelity or TIAA-CREF initially, maybe someone in human resourses can tell you your options.

I will be working at this hospital for at least another 3 years, but not permanently, so i will probably leave my money with Valic. They really have increased the amount of options a person can choose from. That causes me problems because i can't figure out what is best for my account.

You have the option of taking your retirement money with you to your next employer, with a few exceptions. That way you can compare the two plans, and if the future employer's plan allows and it's a better plan, move it there. Al those options are great, but if all they're doing is making you that much more unsure what to select, then it's not really much of a benefit, is it.

In order for you to determine how you should divy up your retirement stash, you need to do a few things first. You should take into account your tolerance for risk, your overall timeframe until this money is needed, how this fits into your overall portfolio asset allocation (if this applies), exactly how diversified you want to be, and how much you plan to set aside for this account. Hopefully you've read the 13 Steps (here: http://www.fool.com/school/13steps/13steps.htm?REF=PRMPIN ), to see a Foolish take on investing and how simple and basic it may need to be for you. Some make investing as simple as just a total stock market index fund (like VTSMX), or some may add a bond fund or small-cap fund, and set-it and forget-it. I'd like to provide a few links on how one might select funds for a retirement plan, and different thoughts on asset allocation. From there, it's up to you to decide where your money goes.
http://www.fool.com/Retirement/RetirementStep5.htm
http://boards.fool.com/Message.asp?mid=14726606
http://boards.fool.com?Message.asp?mid=14603963
http://www.businessweek.com/bwdaily/dnflash/jun2001/nf20010618_123.htm
http://www.investorhome.com/asset.htm
Just my opinions, HTH

Bookm
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I picked up the prospectus of Fidelity, Tiaa-cref, and Valic. I called each company also. Fidelity was the only one who was able to answer my question about fees. Due to the contract with the hospital, there are no fees from Fidelity, even if i invest in several mutual funds and i can invest in any Fidelity mutual fund. The problem with this is the vast amount of funds available and how many seem to overlap. They also have the Freedom Funds (Fund of Funds) which may be a solid choice. That is just a matter of research and understanding a solid asset allocation plan for my young age ( i want to be very aggressive with my retirement portfolio). Fidelity is also a true 403(b), not an annuity like the other two choices. I don't know if this will matter either way if i am in a 403 or tax deferred annuity if legislation passes next year about being able to transfer between different retirement accounts. Tiaa-cref and Valic were unable to answer the fee question. I too have heard good things about Tiaa-cref, but their choices to my retirement account are very limited with only 11 funds available and only 4 are stock funds. To me that seems a little too narrow. But i will continue to do some research in that area.

When i first opened the Valic account i felt customer service was very important because i understood very little about investing. Since then i have read everything under the sun and have asked hundreds of questions. So that is no longer important.
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Hello again pjrn, Here's the info I talked about, even it's prolly way too late. You stated the VALIC rep said no fees you have to pay, well, the prospectus states you may be subject to SIX types of fees and charges:
1.) Account Maintenance Fee - $15 per year.
2.) Surrender Charge - which amounts to not greater than: 5% of the amount of all Purchase Payments received during the past 60 months; or 5% of the amount withdrawn. There are some exceptions, though.
3.) Premium Tax Charge - which can be charged by some cities or states up to 3.5% of payments.
4.) Separate Account Charge - which is the M&E fee and the Administration and distribution fees, which annualized, amount to .35%-.85% during Purchase Period, and .75%-1.25% during Payout Period.
5.)Fund Expenses - which include management fees, 12b-1 fees and other fees. some of which may be waived, but reinstated anytime without notice.
6.) Other Tax Charge - this could be in the form of Federal income tax, none exist at this time.

Just an example of the actual cost, VALIC sent out an enclosure with the prospectus regarding new funds replacing old ones, and their total NET expenses. The 7 funds listed ranged from a low of 1.50% to a high of 2.06%. One could be considered fortunate though, the ones replaced had expenses of 2.21%, 2.13% and 2.08% respectively. Lucky you ;-)

You also mentioned something about wanting to be aggressive in your young age and fund of funds. I have two useful resources on these issues for you to read, here:

http://boards.fool.com/Message.asp?mid=13489102
http://news.morningstar.com/news/MS/InvestingForRetirement/lifecycle2.html

Watch those fund-of-funds for 2 layers of fees, though.

Whatever you do read the prospectus before you put any money anywhere.

HTH

Bookm
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Thanks for the info,
After your first post, i read the Valic Prospectus and noticed all the expenses that Valic has put in. I think that is really high. I have a choice between Fidelity and Tiaa-cref, do you have any thoughts about these companies? I have read their information and have called each company. Also, if i do switch, should i just not contribute to Valic for a while until the market turns, or should i transfer my money to the new company account, whatever i should choose as soon as i switch my 403 to fidelity or tiaa-cref. I did like Tiaa-cref, but fidelity has many more choices (which can be a good and bad thing).
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