Advice on TDF
Here’s a tailored breakdown for your situation:
1. Foreign Large Growth (FKIDX) for International Allocation
- Not Ideal for Diversification: Foreign large growth funds like FKIDX tend to focus on specific types of international stocks (growth-oriented, large-cap). This lack of diversification can leave you exposed to sector or style risk. A better international fund would include a mix of growth, value, and small/mid-cap stocks for broader exposure.
- Expense Ratio (0.6%): While not extremely high, it’s still relatively costly, especially compared to broader, lower-cost international funds available in other plans.
2. Target-Date Fund (TDF)
- Expense Ratio (0.75%): TDFs are convenient but come with a higher expense ratio. This might not be worth it if you can replicate its allocations with your other low-cost options (like the S&P 500 and Total US Bond).
- Downside: You give up control, and the higher fee eats into returns over time.
3. Suggested Allocation
To minimize costs and maximize diversification, build your own portfolio using the low-cost options:
- S&P 500: Use this for U.S. stock exposure. It's a solid foundation with a very low expense ratio.
- Foreign Large Growth (FKIDX): Allocate only a modest portion here for international exposure, as it's your only option.
- Total US Bond: Use this for the bond portion to balance out your portfolio and reduce volatility.
A sample allocation might look like this (adjust based on your risk tolerance):
- 70% S&P 500
- 20% FKIDX (International)
- 10% Total US Bond
4. Why Skip the TDF?
By replicating the TDF's allocation yourself, you:
- Save on the higher expense ratio (0.75% vs. blended lower costs).
- Gain more control over your portfolio and rebalance as needed.