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Author: obsidian715 Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 75532  
Subject: 401k options Date: 7/15/2005 12:50 PM
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Hi, Fools!

I'm looking for some advice on how to distribute my 401k contributions. I don't know anything about the available funds. So far this year I have a 4% return. The best performing fund I can choose from has only yielded 7%, and it's the large cap fund I've been investing in already. So, I wanted to get your opinions on this.

Available funds:
Specialty
AIM Technology Fd IC
MerLyn Healthcare Fd Cls A
Index:N/A
International Stocks
Am Cent Int'l Grwth AC
Janus Worldwide Fnd
Opp Global Fnd Cls A
Index:EAFE
Small Cap Stocks
Franklin BalSheet Inv Fd A
Index:Russell 2000
Mid Cap Stocks
Frank SmlMid Cap Grth Fd A
T Rowe Pr Mid Cap Gr Fnd R
WFAF Common Stock Fnd Cl Z
Index:S&P 400
Large Cap Stocks
Growth Fund of America R3
Am Cent Ultra IC
Gartmore S&P 500 Index SC
Janus Fund
Neu Ber Partners Fd TC
Index:S&P 500
Balanced
DreyPrem BalOppor Fd Cls Z
Van Kampen Equity & Inc A
Index:Balanced Benchmark
Bonds
Am Cent ST Govt Fd AC
Index:Lehman Bros Agg Bd

Currently, I have a distribution of:
20% to Opp Global Fnd Cls A (International Stocks)
10% Franklin Balsheet Inv Fd A (Small-Cap Stocks)
30% Frank Smlmid Cap Grth Fd A (Mid-Cap Stocks)
30% New Ber Partners Fd Tc (Large-Cap Stocks)
10% Van Kampen Equity & Inc A (Balanced)

Like I said, the large cap has performed best so far for me and overall, but I singed up before I knew what that was. I'm only 29 so can afford to be aggressive. Any insight anyone might have into this would be greatly appreciated. If it would help to provide more info on each fund, I can also do that. I'm still really new to all of this, so for me to read the summaries on the funds doesn't do much good just yet.

As always, thanks for the help!
Gina
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Author: DeltaOne81 Big gold star, 5000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 46892 of 75532
Subject: Re: 401k options Date: 7/15/2005 1:17 PM
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Take a look at this thread from the 401(k) board a little while ago. A couple people chipped in ideas, including me:

http://boards.fool.com/Message.asp?mid=22692085

Also, be careful of anything that ends in an 'A' (or a B for that matter). Those are usually load funds and are going to take a chunk (usually 5%) out of anything you put in. Load fund is no good.

Overall you have the right idea spreading between a large, mid, small, and international. You may want to check on your balance between growth, blend, and value too. One note: a 'global' fund often also includes some (or a good amount) of U.S., so if you were intending to have 20% international, you may not be getting it that way. Up to you how much you want to put in what class.

3.5% is not at all bad for this year, it's been a slow year and the funds can only do so much with respect to the markets their dealing with. Read your quarterly (or semi-annual) fund prospectuses and see how they're doing against their benchmark. If they're regularly falling behind, you may want to look for another. Also, do *NOT* judge the funds by such a short performance period. Look at their annual performance for the last 5, 10 years against an appropriate benchmark/their category. A few months mean nothing in the market.

Finally, look with an eye towards keeping expenses down (and definitely get out of any load funds). Most mutual funds do *not* beat their respective indexes most of the time, so being in a low fee index fund, most of the time, will do you better over the long haul. Having 25 to 50% of your portfolio in low cost indexes (assuming you're not risk adverse and want to play it safe, as you've indicated you're not), is probably a good range.

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Author: foolazis Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 46893 of 75532
Subject: Re: 401k options Date: 7/15/2005 2:42 PM
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It homework time!

Our 401(k) is changing plan administrators and we have mostly all new investment options to consider. What you need to do is get the prospectuses(?) for each of the funds, or you can try looking them up at www.morningstar.com . Check out the longer term returns (5 and 10 year). Definately check out the expenses, loads, 12b-1 fees, etc. Read up on the investment strategies for each of the funds. Check out the top holdings and asset allocation for each of your choices. I built a spreadsheet summarizing all this information side by side. This let me narrow down my choices and do "what if" calculations showing my historical returns, total costs, and asset mix for different percentage allocations for my short list of funds and see what comes closer to my idea asset allocation.

Pay particular attention to the expenses. It looks like most of your choices are load funds (hint: if the name ends in A or B, then there are loads). However, this may not be all grim. Check with your plan administrator to see if the loads are waived for these funds. This is sometimes the case, especially with larger company 401(k)s.

It looks like you've given a good deal of thought with already about your asset allocation. It then becomes a research task to pick which specific funds you want to be in. Kudos for starting to save at your age. I wish I had done so at 29. I would be a lot closer to retirement by now. Good luck to you.

foolazis

- cooling down to 110 today

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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: 46894 of 75532
Subject: Re: 401k options Date: 7/15/2005 2:45 PM
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As others mentioned (but I want to emphasize), 401K plans usually waive any charges for A share purchases. If so in this case, A shares (and I shares) are where you want to be.

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Author: DeltaOne81 Big gold star, 5000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 46895 of 75532
Subject: Re: 401k options Date: 7/15/2005 3:43 PM
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If so in this case, A shares (and I shares) are where you want to be

Not that I disagree, I'm just curious why you say this. Do companies really save some of their best investment decisions for their load funds? So that, excluding loads, they outperform the non-load variety?

If so, what about companies that don't offer an equivalent load fund... would they really hold back their performance on a fund that doesn't have a load?

If your 401(k) is waiving the load, that's great, but it would seem to me that the load fund then gets an equal footing with the others... why would it be better?

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Author: rkmacdonald Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 46897 of 75532
Subject: Re: 401k options Date: 7/15/2005 8:12 PM
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Author: DeltaOne81 | Date: 7/15/05 1:17 PM | Number: 46892
Also, be careful of anything that ends in an 'A' (or a B for that matter). Those are usually load funds and are going to take a chunk (usually 5%) out of anything you put in. Load fund is no good.


This is good advice, except that many 401(k) and 403(b) plans are with 'Advisors' who sell only loaded funds. You only choice in that situation is to go with the loaded funds or find another job.

My recommendation in that situation is to invest in the 401(k) only up to the company match, if there is one (after all, that's free money). Then go outside to a high quality, no-load, low cost mutual fund like Vanguard with the rest of your retirement savings. You won't get the tax deduction, but in the long run, I think you will come out ahead without having to pay 5.75% load fees and 2.2% expense ratios.

Russ


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Author: ResNullius Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 46898 of 75532
Subject: Re: 401k options Date: 7/16/2005 10:30 AM
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I would get rid of the international fund and the balanced fund. At your age, you don't need the balanced fund. As for the internation fund, I think folks are better off over the long haul by being well diversified in equities available in domestic mutual funds. Personally, I have all my investments with Vanguard, but that's just me.

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Author: ResNullius Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 46899 of 75532
Subject: Re: 401k options Date: 7/16/2005 10:36 AM
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This is good advice, except that many 401(k) and 403(b) plans are with 'Advisors' who sell only loaded funds. You only choice in that situation is to go with the loaded funds or find another job.

When I was still in the rat race, my firm had my 401k with NationsBank, now Bank of America. They were a complete rip off in terms of fees and expenses, with piss poor results to boot. I think employees should sue their companies for mismanagement of the retirement funds when the company choses to use rip off artists to take care of their 401k. Companies do this because of the perks they get from the so-called advisors, or sometimes simply because they like the idea of having a big name handle their funds. It's just plain rediculous to waste money on fees and expenses.


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Author: intercst Big funky green star, 20000 posts Top Favorite Fools Top Recommended Fools Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 46900 of 75532
Subject: Re: 401k options Date: 7/16/2005 11:32 AM
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ResNullius writes,

<<This is good advice, except that many 401(k) and 403(b) plans are with 'Advisors' who sell only loaded funds. You only choice in that situation is to go with the loaded funds or find another job.>>

When I was still in the rat race, my firm had my 401k with NationsBank, now Bank of America. They were a complete rip off in terms of fees and expenses, with piss poor results to boot. I think employees should sue their companies for mismanagement of the retirement funds when the company choses to use rip off artists to take care of their 401k. Companies do this because of the perks they get from the so-called advisors, or sometimes simply because they like the idea of having a big name handle their funds. It's just plain rediculous to waste money on fees and expenses.


The last company I worked for before I retired (Fortune 500 chemical company) also had a Nation's Bank 401k plan with high fees.

At one of those annual meetings where the HR people explained the company's benefit plan an employee asked, "Is there any connection between us having a crappy 401k plan and the fact that the CEO's nephew is the Nation's Bank VP of Sales & Marketing?"

Never found out what happened to that guy. <LOL>

intercst



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Author: ziggy29 Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 46901 of 75532
Subject: Re: 401k options Date: 7/16/2005 11:46 AM
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>> I would get rid of the international fund and the balanced fund. At your age, you don't need the balanced fund. As for the internation fund, I think folks are better off over the long haul by being well diversified in equities available in domestic mutual funds. Personally, I have all my investments with Vanguard, but that's just me. <<

I agree with ditching the balanced fund, but I don't agree with ditching the international fund.

#29

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Author: DeltaOne81 Big gold star, 5000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 46902 of 75532
Subject: Re: 401k options Date: 7/16/2005 1:23 PM
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I agree with ditching the balanced fund, but I don't agree with ditching the international fund.

I admit that ditching the balanced fund makes complete and total sense. Nonethless, I have one. It just makes me feel a little more comfortable to be hedging my bets just that tiniest bit - which is weird, cause I'm pretty risk adverse overall, while also knowing that it won't make a large difference in overall returns. If you're comfortable ditching the balanced fund, by all means, ditch it. If it helps your piece of mind, keep it.

As far as the international fund, I disagree as well. There's definitely reason to keep it. No less than Warren Buffet has predicted that we'll less lackluster ~6% returns in the US economy for several years. Who knows if he's right, but to say that the US is only and always the best economy to invest in will not be true forever, and will certainly not be true in some stretches. With sky high deficits and SS debts on the horizon in 10-20 years, and political divisiveness and terrorism threats, you can't say the the US has a trouble-free outlook at the moment.

I have an international (not global) fund and I'm thinking of adding an Emerging Markets index in my Roth in a year or two. In fact, I'm thinking of a goal allocation in a few years of 60-65% domestic, ~25% foreign, and the rest in mainly (domestic) higher yield bonds and a (domestic) REIT fund, with a touch of safer bonds. Part of that is simply due to the fixed chunks that you need to invest in when using ETFs in a Roth (to keep transaction costs down). But anyway, needless to say I'm far from convinced that the US is the best and only place to put your money for the next while.

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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: 46930 of 75532
Subject: Re: 401k options Date: 7/18/2005 10:04 AM
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<<Not that I disagree, I'm just curious why you say this. Do companies really save some of their best investment decisions for their load funds? So that, excluding loads, they outperform the non-load variety?
>>

No, it is just that the operating expenses on an A share are lower than a B.

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Author: 2old4bs Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 46932 of 75532
Subject: Re: 401k options Date: 7/18/2005 2:36 PM
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Hi Gina!

I'm going to pop in here with a different perspective than some of the other responses you've gotten.

First I'd like to say that for someone who claims to not know too much, you picked some pretty good funds, as well as a fairly decent allocation strategy!

Based on my very brief investigations, most of the funds you hold have done quite well since inception, often beating their indexes. Which brings me to a point, there are two major viewpoints on mutual fund investing. One says buy index funds because they are far 'cheaper' in terms of fees and over the long haul outperform managed funds. The other group believes that SOME managed funds can and do outperform index funds, but they are few and far between, therefore you have to watch over them like a mother hen over her chicks and be alert to manager changes, or to early warning signs of reduced returns. Then there are some folks (like me) who invest in both index funds and managed funds. Perhaps the first thing you need to decide is to which of these groups do you belong?

Because if you belong to the first group (the indexers), you would simply invest in the S&P500 Index, the S&P 400 Index, the Russell 2000 index, the EAFE index, and the Lehman Agg Bond index in whatever percentages you believe will work best. For example, 30%, 15%, 15%, 20% and 20%. Then once each year you will 'rebalance' by selling the areas that have outperformed (now more than their allocated percentage) and buying the areas that have underperformed (now less than their allocated percentage). This strategy would probably ensure you an overall return very similar to the overall return of the total market over time (which could be up, down or sideways--no one really knows), while avoiding high risk.

Or, you could invest solely in managed funds, using a lot of time and energy to track them on at least a monthly basis to see how well their returns are holding up against similar indexes. (For example by comparing OPP Global (OPPAX) with the EAFE index)

Or, you could use 80% of your total dollars to create an index fund core, and use the balance of 20% to 'gamble' with managed and/or specialty funds.

You have chosen all managed funds, but the ones that I briefly investigated, OPPAX, FRBSX both have beaten their indexes.

http://quicktake.morningstar.com/Fund/snapshot.asp?Country=USA&Symbol=FRBSX

http://quicktake.morningstar.com/Fund/snapshot.asp?Country=USA&Symbol=OPPAX

Although The Franklin Balsheet Inv Fd A, which claims to be a mid-small-cap, is actually more of a mid-cap, according to Morningstar.

Steer clear of Janus Worldwide as all 'flavors' of this fund are dogs!--consistently underperforming their index by a wide margin.

http://quicktake.morningstar.com/Fund/snapshot.asp?Country=USA&Symbol=JAWWX

I do not know which of these three funds your Neuberger Berman is,
NBPBX, NBPBX, or NPRTX, but all 3 are rated 5 stars by Morningstar.

4% is quite a respectable overall return so far for 2005, so don't let this worry you.

Two very good books you might want to read are "The Four Pillars of Investing" by William Bernstein and "Common Sense on Mutual Funds" by John Bogle. These will help you to gain a knowledge of index funds versus managed funds and portfolio allocation strategies.

2old
(sorry so long)

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Author: W401K Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 47033 of 75532
Subject: Re: 401k options Date: 7/25/2005 9:39 AM
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Most Advisor sold fund companies waive the front end and/or back end load when the investments are being made in a corporate group retirement plan. Therefore, the A shares would be purchases at NAV. They will still have higher expenses as far as expense ratios go, but there will be no upfront or back end charges. keep in mind expenses are just one component when making an investment decision. The object of the game is not he who pays the least, the object of the game is he who retires with the most. If net of fees, the advisor sold funds have historically equaled or beat the no load, then I don't mind paying more, especially if I have access to Financial Advice if needed. Not everyone is comfortable making these decisions by themselves.

Bill

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