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I have about $1500 cash sitting in my 401(k) that I would like to put into something that I can just forget about for a few years, regardless of which way the market goes. For this section of my 401(k) portfolio, I am looking for slow but steady growth over the long term but with low risk- I have other investments that are more aggressive. A friend suggested I put this money into an equity index fund. Do you all agree with that strategy? If so, any recommendations as to how I should pick a fund, or as to any known consistent performers? Thanks.
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Greetings,

I have about $1500 cash sitting in my 401(k) that I would like to put into something that I can just forget about for a few years, regardless of which way the market goes. For this section of my 401(k) portfolio, I am looking for slow but steady growth over the long term but with low risk- I have other investments that are more aggressive. A friend suggested I put this money into an equity index fund. Do you all agree with that strategy?

No, I strongly disagree with that strategy. If you want steady growth then I'd likely think a short-term bond fund or a stable value fund would be up there as first ideas with a balanced fund or junk bond fund as something a bit more aggressive if you want that. Think about it this way: If the market has a repeat of 2000-2002 downturn, would you be OK with the big losses that that turned in?

For an extreme example, an equity index fund like QQQQ in that 2000-2002 time frame had these annual returns: "-36.11% -33.35% -37.37%" using Morningstar's data. Somehow losses of that magnitude aren't "low risk" but hey that's me.

If so, any recommendations as to how I should pick a fund, or as to any known consistent performers?

My initial question would be what kind of asset allocation do you want this money to be in? Cash equivalents, bonds, stocks, real estate, or something else? That is the starting point, IMO, and then a few more questions will flow though an index fund in such a category may not be a bad selection.

Regards,
JB
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The simplest thing to buy and forget, assuming you mean 5 years or greater, is a total market index fund. An index fund will generally have the lowest expense ratios and other costs. They give the best return with the least effort.

As far as investing, the only thing that guarantees "steady growth" is CDs/money market accounts. EVERYTHING else has winning and losing years.

JLC

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Greetings JLC,

The simplest thing to buy and forget, assuming you mean 5 years or greater, is a total market index fund.

This reminds me of a thread from the "Index Funds" board about someone who noticed that the Vanguard 500 Index, which while not quite a total market index fund is likely to be close, over the past 5 years returned had a total negative return which she found surprising:
http://boards.fool.com/Message.asp?mid=23319272&sort=whole

Regards,
JB
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The only investments that have steady, guaranteed growth are money market funds, CDs, or high quality individual bonds (NOT bond funds) - 5 years is in fact a pretty good length of time to consider a US Savings Bond for.

If you're willing to allow a little less steady growth, but a very low chance of actually loss, a ST bond fund is a option.

If you need this money in 5 years, it's a good idea. If you don't, I suggest you consider not cutting off your returns just to have a more stable portion. Rather, consider diversifying... into REITS, or blue chip divident funds, or high-yield/junk bonds. Basically into something that, while it may not be stable every year, will at least move on a different pattern than other sectors, so it will overall help your portfolio be more stable.
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The simplest thing to buy and forget, assuming you mean 5 years or greater, is a total market index fund.

This reminds me of a thread from the "Index Funds" board about someone who noticed that the Vanguard 500 Index, which while not quite a total market index fund is likely to be close, over the past 5 years returned had a total negative return which she found surprising:
http://boards.fool.com/Message.asp?mid=23319272&sort=whole

Regards,
JB


Nothing is perfect, but the chance of it happening in any 5 year period is extremely small. IIRC, over the past 100 years, a 5 year losing period maybe 10% or so. Expand out to 20 years and it is basically zero. On average, during those time frames, nothing beats equities.

JLC

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If you're willing to allow a little less steady growth, but a very low chance of actually loss, a ST bond fund is a option. - DeltaOne81

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IMHO, there is virtual certainty of a small loss over the next six months in a bond fund. The Fed will have one and possibly two more rate increases, then we'll see. For the next six months <at least> I am strictly CD's and MM for the fixed income portion of my asset allocation.

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Do you all agree with that strategy?

On the surface - NO!

For this section of my 401(k) portfolio, I am looking for slow but steady growth over the long term but with low risk- I have other investments that are more aggressive.

On the scale of "aggressive" where do the other investments fall and are the correlated to the equity index you would chose? An equity index is not where I would stash some money and forget about it for any length of time. I would look at some bond funds if you just want to forget about it. With rising interst rates keep an eye on the term and maybe some in the higher yield area, but other than that - If you want to forget about the money and have it secure, find a CD.
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I have about $1500 cash sitting in my 401(k) that I would like to put into something that I can just forget about for a few years, regardless of which way the market goes.

You can always forget about anything. However, if you want to make money on something regardless of which way the market goes, then you have an impossible dream.

You need a trading discipline, and there are a lot of ways to make money in the market. Buying and holding something is usually not a good idea, unless you get lucky.

Get some books on trading and technical analysis. If this is too hard, then you should not be in the game.

This board has been un-offically declared as a support group for people who just buy and hold index funds. That is not a good way to make money.
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You need a trading discipline,

Many 401(k) plans have trading policies that charge you if you actively trade in your account. Active trading is more appropriate in non-retirement brokerage accounts, or maybe IRAs, but never in 401k plans.

This board has been un-offically declared as a support group for people who just buy and hold index funds. That is not a good way to make money.

This is a board for retirement investing (the long term building and preservation of wealth), not making a quick buck. Indexing works well for retirement accounts because of the low fee structures of index funds and the long hold times required of a retirement account. Over the long haul, the direction of the market is up.
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