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Author: guywinter100 Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 25214  
Subject: 401K Advice Date: 12/20/2011 10:22 AM
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Give the economic turmoil lately I've no idea how to allocate my 401K contributions. Reaching out to see if I can get any good advice. Would love to get opinions on if the following allocations are good or bad?

American Funds EuroPacific Growth Fd R4 10%
INVESCO International Growth I 10%
Columbia Acorn International Z 10%
Oppenheimer Small & Mid Cap Value Y 20%
Royce Pennsylvania Mutual Fund - Inv 10%
Vanguard 500 Index Fund 20%
INVESCO Charter I 10%
Lord Abbett Fundamental Equity I 10%

Returns for all of the above are down signficiantly for the year to date. My fund choices are listed below. The only funds that are up year to date are Money Market, Bond, Speciality and Balanced. I'm thikning of changing my allocation mix but am also thinking that maybe I should stick it out since I have over 20 years to ride it out (I'm 39 years old) and maybe it's not so bad to be buying in a down market. Thanks in advance for any advice!

Here are my fund choices:

Asset Allocation:
Fidelity Advisor Freedom Inc I
Fidelity Advisor Freedom 2005 I
Fidelity Advisor Freedom 2010 I
Fidelity Advisor Freedom 2015 I
Fidelity Advisor Freedom 2020 I
Fidelity Advisor Freedom 2025 I
Fidelity Advisor Freedom 2030 I
Fidelity Advisor Freedom 2035 I
Fidelity Advisor Freedom 2040 I
Fidelity Advisor Freedom 2045 I
Fidelity Advisor Freedom 2050 I

Money Market
Vanguard Admiral Treasury Money Market
Vanguard Reserve Prime Money Market Inst

Bond
American Funds High Income Trust R4
PIMCO Total Return - A

Balanced
American Funds Income Fund of America R4

Large Cap
American Funds Fundamental Investors R4
American Funds Growth Fund of America R4
American Funds Washington Mutual Fund R4
INVESCO Charter I
Invesco Van Kampen American Franchise Y
Lord Abbett Fundamental Equity I
Vanguard 500 Index Fund

Mid Cap
Fidelity Advisor Leveraged Co Stk I
Small Cap
Fidelity Advisor Small Cap Instl
Oppenheimer Small & Mid Cap Value Y
Royce Pennsylvania Mutual Fund - Inv
International
American Funds EuroPacific Growth Fd R4
Columbia Acorn International Z
INVESCO International Growth I

Specialty
INVESCO Real Estate Fund Inst

Stock
Micros Systems, Inc. Unitized Stock Fund
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Author: Fuskie Big funky green star, 20000 posts Top Favorite Fools Old School Fool Ticker Guide SC1 Red Winner of the 2010 Rule Breakers Challenge Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 24806 of 25214
Subject: Re: 401K Advice Date: 12/20/2011 12:26 PM
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You are leaving out some critical information, like how old are you, how many years until you envision retirement, what are your 401k assets, what other retirement savings do you have? Can you tolerate short term risk for long term gain or do daily fluctuations make your spine tingle with joy and pain?

Fuskie
Who notes the reason for the nosiness is that selecting 401k options depends on your investment time window, risk tolerance and overall portfolio picture...

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Author: guywinter100 Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 24807 of 25214
Subject: Re: 401K Advice Date: 12/20/2011 1:41 PM
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Thanks for the reply Fuskie

Actually I did give my age, 39, and indicated risk tolerance given that I have 20+ years to retirement.

I'm really just looking for an idea as to that funds are expected to perform the best over the long term.

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Author: Hawkwin Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 24808 of 25214
Subject: Re: 401K Advice Date: 12/20/2011 3:22 PM
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To keep it simple, and assuming you are retiring and taking income around age 65, the Freedom 2035 would be an easy option to pick. It has reasonable expenses (.79), low turnover, and seems to perform as well as all over target date 2035 funds per morningstar. It is negative YTD as well but that should not concern you - that just means it is on sale.

You could diversify with other funds but the last thing I would focus on what be how they did this year. Use some of the various asset allocation tools available online and then select the funds that fit those asset classes that have the lowest volatility and the cheapest expenses and you should do well.

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Author: pauleckler Big funky green star, 20000 posts Top Favorite Fools Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 24809 of 25214
Subject: Re: 401K Advice Date: 12/20/2011 7:07 PM
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Given your long term focus, I think your current allocation is fine. Most of us think the economy will recover slowly. The equity investments you make now will probably do quite well. So keep buying equities for now and don't worry about short term performance.

You seem to be 100% into equities with a reasonable position in international stocks and small caps. That is fine for now.

When you get within 10 years of retirement, you might want to consider adding some bonds.

When stocks start doing well again, you will be able to see which of your funds are doing well. Judging when stocks are down is more difficult, but if you must compare them to their respective indexes or the S&P 500. But hold off for now if you can.

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Author: Fuskie Big funky green star, 20000 posts Top Favorite Fools Old School Fool Ticker Guide SC1 Red Winner of the 2010 Rule Breakers Challenge Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 24810 of 25214
Subject: Re: 401K Advice Date: 12/21/2011 12:00 AM
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At your age and with your goal of an early retirement at 59, I would consider a 60-40 mix of stocks over bonds, maybe 70-30 if you want to be more aggressive.

Now, there are five metrics you want to consider when evaluating a mutual fund:

1. Management Tenure. You want to look for a mutual fund whose lead manager has been around a while. These are the individuals with proven track records keeping the fund in line with its stated objectives (read the prospectus to know what those are). The longer they have been around, the more diverse the economic conditions they will have navigated the fund which means the better chance they can be successful in any market.

2. Expense Ratio. Mutual funds invest in equities and as such incur transaction costs just as we would if we were buying companies ourselves. These costs are built into the mutual fund NAV price, but it's smart to know how much of your share price is going to pay for management and how much is actually investment. A lower expense ratio, usually found in index funds, means more of your money is working for you.

3. Turnover Rate. The Motley Fool tends to promote buy and hold investing and the same can be said for mutual funds. The logic is simple - the fewer trades made by fund managers, the lower the expense ration. A low turnover rate also suggests the fund is invested in strong, high quality companies with long term growth potential. Not surprisingly, index funds tend to have the lowest turnover rates since the companies making up the index do not change.

4. Past Performance. Sure, past performance is no guarantee of future returns, but it is reasonable look at how the fund's management has performed over time in a variety of market conditions. The last 5 years can tell you how they have done during the recession. The last 20 years can tell you how they have performed when things were more rosy. Consistently above average returns over different periods of time indicate a management team that doesn't panic and is flexible to market changes, and that is good news going forward.

5. Dividend Yield. Not every mutual fund pays a big dividend but if you can find one that that meets the other requirements and also has a good annual yield, then you can take advantage of dividend reinvestment programs available in most 401k plans to grow your positions quantitatively in addition to your regular contributions, so that the growth in gains are even more powerful.

Other things to consider. I usually check to see that a mutual fund is nearly totally invested. If you are putting your retirement hopes in a mutual fund, you don't want the fund manager to be leaving a large amount of its assets in cash or safe short term securities. You want the money working for you.

Fuskie
Who hopes this gives you some tools you can use to become better educated and invested in managing your 401k...

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Author: guywinter100 Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 24811 of 25214
Subject: Re: 401K Advice Date: 12/27/2011 11:14 AM
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Thank you so much for the advice! Really incredible to be able to get this kind of information so quickly, not to mention free :)

Happy Holidays!

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