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Financial Planning / Foolish 401(k)s
|Subject: Low cost funds||Date: 9/28/2013 9:42 AM|
|Author: W401K||Number: 25157 of 25899|
Pick the lowest cost funds. Look for funds with the lowest expense ratios, avoid higher fee funds. Pick from the index funds available in your plan. Don't pick target date funds, as those have higher fees. You should never pay more than 1%, low cost funds are better,...
These are just a small sample of quotes from replies to people looking for help with fund selection within their 401ks. I am not debating the validity of the advice. All things being equal, the lowest cost funds should be selected. Passive management has a place in every single portfolio. However, what is somewhat frustrating is when people make their investment decisions and focus their retirement planning efforts on this criteria alone. Rates of contribution, length of time contributing, and asset allocation all factor in significantly more on retirement outcomes than fees.
A recent thread here focused on fees and left the person asking the question with no mention of International and Global funds as these typically have higher expenses. The recommendation also included Bond Index funds. The Barclays Aggregate Index is over 75% tied to Government Bonds, Government Agencies, etc. High Quality, Intermediate to Long Duration Bonds dominate this index. These are exactly the type of fixed income instruments that gets hit the hardest when rates rise. No mention of International Bonds, no mention of Senior Floating Rate funds, no mention of Multi Sector Bond funds, just pick the index as it has lower expenses. Not exactly sound advice. Other investments get left out of the equation. MLP funds (Master Limited Partnership) have a negative correlation to the Barclays Aggregate Index and offer excellent diversification (Usually 5 to 10% of a portfolio) yet no mention, just pick lowest cost.
Please, select the lowest cost funds in your plan. That should be one of several criteria, not the only criteria.
The object of saving for retirement is not he who pays the least. The object of saving for retirement is he who accumulates the most. That is done by contributing early, increasing your contribution every year you get a raise. Sound, diverse, asset allocation that meets your risk tolerance and time horizon, and selecting best in class, low cost investment options. Many 401k plans come with the services of a Financial Advisor. Use those services whether the advisor is an employee of your provider, or an independent advisor.
Don't day trade or trade frequently within your 401k. Work with a strategy that makes sense for you and stick with it. If you follow the headlines and get in and get out, you have to be right 3 times for this to work. 1. When to get out. 2. Where to go. 3. When to get back in.
Very difficult to do on a consistent basis.
Yes low cost, but also a properly diversified portfolio that looks to incorporate index funds but also looks beyond index funds as well.
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