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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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