No. of Recommendations: 1
'Underperformance,' of course only means relative to the market. Last year was a bad year for the market as a whole, so if you really want to know if your funds are 'underperforming', you must compare them to the appropriate market index. Last year was also anomalous in that a larger than normal number of mutual funds outperformed the market indexes, but this is the exception, not the rule. With retirement investing you need to find long-term winning strategies.

To track the actual returns of the market, choose a low-expense index mutual fund - i.e. Vanguard. If you think you can do better than the market by picking individual stocks, you are free to do so, but the major drawback is that without a large capital stake, you are not going to be able to achieve anything close to a decent diversification. With buying small amounts of individual stocks, you also run into the problem of high expense relative to total amount invested.

You suggest that you might accumulate assets in a money market account and then transfer to individual stocks. The concern there would be the opportunity cost of being out of the market. There's no reason why you can't start contributing to an S&P 500 or total market index fund immediately, and plan to get into individual stocks later when you have more of a stake built up.

There's a board on index funds here on the Fool that you might want to check out.


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