403b Question-Need advice

[Tom B.]

Before people scream "DON'T SELL NOW!" please hear me out:

A friend of mine realized her actively managed 403b plan had a HIGH FEE 1.30% expense ratio and wanted to direct exchange into a Vanguard low-cost Index fund Vanguard 2050 at .15% ER that is offered).   It seemed like a good idea until Coronavirus set in and the market went haywire.  

  We are public school teachers so the only advisors offered are salesmen that push us into sucky 403b high fee plans. Most other fee-only advisors are expensive or want 1% for advice.  She doesn't understand much about finance so she asked me for advice.

Situation: She is 30 years old, a teacher, and will be investing for the next 25-30 years.  

Question: Do you think she should ...

A)  NOT do a direct exchange now rather leave her 403b plan alone and don't worry about the high fees?

B) DIRECT EXCHANGE into the Targeted Vanguard 2050 considering she will be in it for a while and might as well take advantage of the fire sale on stock?

C) Leave her old 403b plan alone, BUT ALSO open the Vanguard 2050 in order to contribute until this blows over, and then direct exchange (my advice).

She is not interested in real estate.  

I appreciate any help!

[Sanford Myers]

@Tom B. I would need a bit more information before I would no exactly what the right answer here is. First, does the 403b include an employer match of any kind? If it does, that’s free money and she needs to contribute enough to maximize the match.

Next, I’m not clear, is the Vanguard fund also offered under her 403b plan? If so, that is certainly an option for someone who does not want to think about their investments...ever. I would not drop what is in the initial fund, but if she has no interest in learning about investing, the lifecycle funds are a fair option as an alternative. Personally I find them boring. But boring is fine if it makes you money.

These are questions that I ask some of my employees when they ask me what to do with their money. It helps me to help them find investments that they will be interested in. There are self-directed IRAs, traditional IRAs, Roth IRAs, etc. If she has any interest in investing at all (it doesn’t have to be real estate), there are better options out there.

Bottom line...I try to convince young people to invest at least 10% of their income somewhere. Not a standard savings account or some collectible, but in some sort of long-term investment vehicle. The power of compounding will take care of the rest. Sure, there are some investments that may be better at different times, but if someone has no interest in working their investments, either one of the funds you mention will suffice.