BY EARLY 2009, I HAD been investing for 22 years. My wife had invested for a bit longer, and our savings were starting to seem like a significant chunk of money. I was reasonably happy with our investments. Still, I knew that—for those 22 years—we had been paying too much in investment expenses, thanks to the high-fee funds in our employer-sponsored retirement accounts.
Another source of frustration was that our money was spread over seven financial accounts and 14 mutual funds. First, there was my 457 account through the University of North Carolina (UNC), where I did my initial investing. The funds there didn’t perform particularly well, so I was no longer contributing money. Second, there was my 403(b), also through UNC. The best options there—or, at least, what the salesman persuaded me to buy—were several American Funds mutual funds with 5% front-end loads.
Third, my wife had a 403(b) through Nationwide from when she worked for the state as a clinical social worker. She had three actively managed funds in that account. Fourth, in 1998, my wife quit her job with the state to build up her private practice as a clinical social worker. I set up a SIMPLE IRA with Vanguard Group, so she could save part of the money she earned. We also each had Roth IRAs to which we were contributing regularly. Those were accounts Nos. 5 and 6. Finally, because we have no children and we kept our expenses relatively low, and because I’d received several promotions, we had additional money every month to invest, so we put those dollars in a Vanguard taxable account.
All those different accounts made for some complex accounting, but I had them all in a spreadsheet that allowed me to track what percentages we had in U.S. large-cap stocks, mid-caps, small-caps, foreign shares and bonds. Rebalancing was particularly tricky, because some of our funds owned stocks from more than one category. I longed for a simpler set of investments.
That brings me to 2009. Like many organizations—large and small—it seems my employer finally realized that its retirement plans were badly designed and included overpriced investments, and that upgrading those plans was an easy way to improve the benefits provided to employees.
Early that year, the State of North Carolina changed the firm handling its 457 plans from Great-West to Prudential Financial. Prudential offered an international index fund and a large-cap index fund, so I moved my 457 investments into those funds. Expenses weren’t as low as Vanguard’s comparable funds, but they were still much better than the cost of the actively managed funds on offer.
Then, also in early 2009, the University of North Carolina System (which consists of 16 Universities, including UNC at Chapel Hill, the flagship school where I worked) made changes to the way employees could invest. Previously, each school had some local investment groups through which non-faculty employees could invest. But starting in early 2009, Fidelity Investments took over responsibility for the 403(b) plans for most university system employees. (Faculty, as well as some employees, were instead covered by TIAA-CREF.) In return for getting the exclusive contract to handle these 403(b) plans, Fidelity was required to make a subset of Vanguard funds available to university employees.
I was delighted about these changes, and I immediately set about shifting my 403(b) into Vanguard funds. This wasn’t as easy as it sounds. As you might expect, Fidelity didn’t want people to use the Vanguard funds, since Vanguard was a direct competitor and Fidelity wasn’t making any money off the Vanguard funds. As a result, it required multiple phone calls to find someone who knew how to shift both my current account balance and future contributions to Vanguard, and then it took a great mound of paperwork to make it happen.
While I wasn’t able to access Vanguard’s Total Stock Market Index Fund through Fidelity, I was able to get its S&P 500 index fund, along with its mid-cap, small-cap, total bond market and total International stock index funds. This greatly simplified rebalancing, while also reducing fund expenses. I was one step closer to my goal of investing in a small set of low-cost index funds that together would provide a well-diversified portfolio that I could easily manage.
Brian White retired from the University of North Carolina, where he worked as a systems programmer and then director of information technology in the computer science department. His previous articles were Lesson Well Learned and Rookie Mistakes. Brian likes hiking with his wife in a nearby forest, dancing to rocking blues music, camping with friends and stamp collecting. He also enjoys doing volunteer income tax assistance (VITA) work in the Chapel Hill senior center.