Skip to main content
Message Font: Serif | Sans-Serif
 
No. of Recommendations: 0
First some background; I've been with my current employer for 20+ years and have been steadily building my 401k for at least 10 years with reasonably good results. After having been burned by high load / high expense mutual funds in our previous plan (many years ago), I've steered clear of most funds and had the bulk of my portfolio in individual stocks with a couple of funds as an anchor (VTHRX and BRLGX). Our accounts were with a small-time provider which allowed me a free hand to choose stocks or funds at will, although transaction fees were pretty high.

Recently, my employer was advised that the company was putting itself at huge risk b/c in that type of account they had fiduciary duty to make sure the employees that participate were actually investing wisely (eye roll). So, the result is that we are changing providers to a more traditional type plan where I get a menu of mediocrity from which to choose funds. I've already liquidated all of my old positions with the previous provider (missed getting whacked by Brexit by a single day!)

The reason I'm posting is that I hope some of you who navigate these waters can help me avoid the pitfalls. As I understand it from my crash course in internet reading, I need to keep the expense ratio to a minimum and avoid loads if possible. Other than that, I'm thinking I need to allocate to some different sectors/styles.

Here's my short list out of about 30 choices:
FPURX exp=0.56 Fidelidy Puritan; 5-star; Lg Growth
VEIRX exp=0.17 Vanguard Equity Income; 5 star lg Value
FUSEX exp=0.1 Fidelity 500 Index; 4 star; Lg Blend
VSMAX exp=0.08 Vanguard Small Cap Index; 4 star Sm Blend
FCNTX exp=0.71 Fidelity Contrafund; 4 star; Lg Growth

What sorts of things should I be looking at to make my choices? I'm looking at retiring in maybe 15 years, so I ruled out the bond funds.

Feel free to point me to self-help sites. Thanks!
Print the post Back To Top
No. of Recommendations: 1
It appears that you have available in the plan some Vanguard and Fidelity funds. That is great. IMHO I think you should look for broad based index funds with no loads and low expenses. Personally I am not a fan of sector investing instead wanting to own the entire market with something like a total stock market fund. I disagree with skipping bond funds but YMMV.
As far as self help I suggest you visit the Bogleheads site at https://www.bogleheads.org/ You will find a lot of Vanguard fans there but also many who invest in Fidelity funds.
Print the post Back To Top
No. of Recommendations: 1
Do your asset allocation, and then you can pick your funds. But looks like you have some respectable choices here.
Any of the large caps you have would work. I use Vanguard's Equity Income myself. Then you've also got Vanguard's Small Cap index for small/mid caps.

Now add international & fixed income.
Print the post Back To Top
No. of Recommendations: 0
Can you give me an example of a fixed income fund?
Print the post Back To Top
No. of Recommendations: 0
Nevermind the example.

The ones I turned up seem to return 1-5% annually. I gather that they are comparatively low risk, but that seems like a pretty lackluster return to me.
Print the post Back To Top
No. of Recommendations: 1
Feel free to point me to self-help sites. Thanks!

Have you checked with your 401k provider to see if they already offer some asset allocation recommendations? Many 401k solutions these days will help you by offering some risk tolerance questions that will result in a recommended asset allocation model.

They may also offer some target date fund solutions.

Ignore the star rating. It is backward-looking and is not indicative of future performance.

so I ruled out the bond funds.

Well, maybe bond funds but not bonds in general. :)

Take a closer look. I won't spoil it by giving it away but you have selected a fund that has at least 20% bonds in it.
Print the post Back To Top
No. of Recommendations: 0
Take a closer look. I won't spoil it by giving it away but you have selected a fund that has at least 20% bonds in it.

Thanks for pointing that out. Fidelity Puritan Fund FPURX is one of the ones I had my eye on, but the expense ratio (0.56) already has me looking elsewhere.

The whole allocation question is stumping me. I've always invested in what I thought was most likely to make me money based on analyst opinions, my own opinions, and the most up to date information I can gather. With mutual funds, some relatively anonymous manager has a whole hodgepodge of positions in various stocks and I'm supposed to be able to form some idea of how it will perform in the future?

I'm being advised to have this many % of that thing and increase my exposure to that other thing all because that is the way it is done. "How well has that strategy performed for you?" <answered with a blank stare> Bah!

If you can't tell, I'm disgusted with the whole process....
Print the post Back To Top
No. of Recommendations: 1
For anyone who's going through the same process, here are some of the best things I've found to help me along the way:

A Grand, Comprehensive Overview to Mutual Fund Investing
By Bill Barker
http://www.fool.com/School/MutualFunds/Basics/Intro.htm

FINRAA's fund analyzer compares up to three funds to help you see the devastating effects of the expense ratio:
http://apps.finra.org/fundanalyzer/1/fa.aspx

More about Expense Ratio from Investopedia
http://www.investopedia.com/articles/personal-finance/092613...

U.S. Mutual Funds (Maximum per Spreadsheet) By Florian Singlewood
a Google Sheets template you can use to compare LOTS of funds at once. This is a thing of beauty:
https://drive.google.com/previewtemplate?id=0AmDYRxpta7i3dGJ...
Print the post Back To Top
No. of Recommendations: 1
I had my eye on, but the expense ratio (0.56) already has me looking elsewhere.

Don't get caught too much on expense ratios. While they are certainly important, ROI and even perhaps standard deviation are more important.

To use an extreme example, would you rather have a fund that has averaged a net return of 10% over the last 20 years but has an expense ratio of 1% or a fund that fund that havs an average return of 9% over the same time period but an expense ratio of just .1%

I noticed that you are tossing out the Puritan Fund but what about the Contrafund that is even more expensive? In fact, it is the most expensive fund on your list.

Which would you rather have purchased 20 years ago, Contrafund at .71% or Fidelity 500 Index at .1%?

I know which one I would rather have - and it is the same one I have owned for over a decade.

http://quotes.morningstar.com/chart/fund/chart?t=FCNTX&r...

all because that is the way it is done

It isn't because that is the way it is done, it is because of a lot of math supporting such recommendations. Doesn't mean the recommendations will be positive but it does mean that there is a strong justification for such beyond your own opinion that can be subject to a number of biases as well as the potentional for a lack of information.
Print the post Back To Top
No. of Recommendations: 1
"How well has that strategy performed for you?"
LOL - actually that's performed fairly well for me. I started with zero in the mid 80's. Today my portfolio is in the upper 6 figures. And I guarantee you I've put far less than that into it.

I never know what fund will perform well. That's why I have a variety of investments - large, mid, small, and international (stock) funds. I even have fixed income (bonds) and money markets.

My 401k with TRowe Price has all index funds. My IRA with Vanguard has (mostly) managed funds.
Print the post Back To Top
No. of Recommendations: 0
Don't get caught too much on expense ratios. While they are certainly important, ROI and even perhaps standard deviation are more important.

Best I can tell from my admittedly cursory look at the fund universe, there is no correlation between expense ratio and overall performance. Therefore, I see no need to pay the expense.

Point taken on ROI and standard deviation though. I need to check those closer.

Which would you rather have purchased 20 years ago, Contrafund at .71% or Fidelity 500 Index at .1%?

Interesting graph. Does it take expenses into account? If I look at a 3yr or 5yr time span, the result is quite different.

One tool I was looking for but never found was one to tell me the actual return for a given fund if I had bought x$ on a given date. Everything is normalized to assume a given % return per year.

Actually, I had ruled out Contrafund before Puritan. I'm currently thinking a split between Vanguard Equity-Income, Fidelity 500 Index Fund, and Vanguard Small-Cap Index Fund. The lion's share in the large caps with a smaller portion in the small cap world.

there is a strong justification for such beyond your own opinion that can be subject to a number of biases as well as the potentional for a lack of information.

I have a DEEP distrust of financial advisors. They earned it. I try not to let it cloud my ability to evaluate the recommendations I'm getting now.

Thanks for your comments! You've helped me to at least consider some angles I was not seeing.
Print the post Back To Top
No. of Recommendations: 1
Best I can tell from my admittedly cursory look at the fund universe, there is no correlation between expense ratio and overall performance. Therefore, I see no need to pay the expense.

That is fine. Pick the cheapest index funds and be done with it. There is nothing wrong with that and I have more than a few clients that do exactly that but you are looking at the wrong thing to make a choice.

To use an example, if you were trying to buy the fastest car, would you claim that because there is no correlation based on the cost of the tires and the top speed of the car, that you should avoid having tires? Of course not. Mutual funds, no matter how cheap, will always have expense ratios. Your car will always need tires and their cost is not necessary indicate of overall performance but certainly funds with high(er) expense ratios are likely to perform worse over time.


Interesting graph. Does it take expenses into account?

Yes. Mutual fund performance is always quoted net of OE (though not always net of upfront loads for loaded funds).

If I look at a 3yr or 5yr time span, the result is quite different.

Great! If you expect to only be invested for 3-5 years then perhaps you might make a different decision. In your case, it appears you plan to be invested through 2050 so perhaps making investment decisions based on a very short 3-5yr performance is not a good way to pick a fund.

IMO, never make an investment decision based on recent performance. Always make an investment decision based at least one if not two complete market cycles.

http://www.investopedia.com/terms/m/market_cycles.asp

If you do anything less than that, you are "speculating" and not investing. Doesn't mean you can't make money - heck we all probably have our speculation success stories - rbut it is not a strategy for long term investing in a 401k where you ability to trade frequently can easily be restricted.


One tool I was looking for but never found was one to tell me the actual return for a given fund if I had bought x$ on a given date. Everything is normalized to assume a given % return per year.

Same link I gave you above will help you do that - but that being stated, investing based on such would be a mistake especially as it pertains to mutual funds as you cannot even be sure that the current manager of the fund is the same one that gave you that prior performance or that they still hold the same investments or investment strategy.

For example, William Danoff has managed the Contrafund since 1990 so the fund performance over the last 20+ years is HIS performance. If you buy it today, don't do so based solely on the fact that his past performance as been outstanding. That should be just one fact.

Standard disclosure in this industry:

Past Performance is Not Necessarily Indicative of Future Results
https://money-markets-blog.amazon.com/post/Tx2ZCE130STORLK/P...


I have a DEEP distrust of financial advisors. They earned it. I try not to let it cloud my ability to evaluate the recommendations I'm getting now.


*Chuckle* I hope you have seen that my recommendation to you is not a particular fund (though I am a fan and owner of the Contrafund) but more a method by which you should make your own decisions. I agree with you, my peers have more than earned their distrust and I don't take offense to it. If I had my way, kids would receive mandatory education on this topic in high school and my job would become irrelevant in time. I am sure I could find something else to do.
Print the post Back To Top