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This is related to my last question. Actually it is the REAL question so I will just state it outright.


Among the more enlightened Fools here, what do you do when your 401(k) plan only allows you to invest in sucko mutual funds?

The best I can do is Fidelity Spartan US Equity index fund. Here's a big laugh for you, in their online information, Fidelity posts all their fund returns relative to the S&P 500 EXCEPT FOR their S&P 500 index fund. What supreme irony! HA! Anyway, I would rather not be limited to the selection offered by these weasels. How can I get my 401(k) fundage into a good investment vehicle (individual securities, Foolish Four, etc)?

Sincerely,
marimba

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Actually Fidelity does not have much to do with the funds that you can invest in. They are selected by your employer. Jawbone your HR person and they can get your plan to offer a whole lot more.

I would bet that one of the few alternatives is your company stock! A lot of bux are in that plan and if the management can get their hands on it you can bet they are going to try.
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The best I can do is Fidelity Spartan US Equity index fund.

If this is the Fidelity Spartan Market Index (S&P 500) fund (FSMKX) then at a cursory glance it doesn't look too bad. On a chart with the Vanguard 500 (VFINX) and SSgA S&P500 (SVSPX) it lies just between them over a 3 year period.

It appears to have no 12b-1 fee, and an expense ratio of 0.44%, plus a redemption fee of 0.50%, which is a lot cheaper than the vast majority of mutual funds.

You should check with your plan administrator about the expenses, because in at least one 401(k) I have had, the plan absorbed some of the fund expenses.

Your plan administrator is also the person who can tell you whether you can transfer any funds out of your 401(k) without having to leave their employment first. The answer is probably no, so I would try and be thankful that you at least have the option of an index fund within your 401(k).
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Greetings, Marimba, and welcome.

This is related to my last question. Actually it is the REAL question so I will just state it outright.


Among the more enlightened Fools here, what do you do when your 401(k) plan only allows you to invest in sucko mutual funds?

The best I can do is Fidelity Spartan US Equity index fund. Here's a big laugh for you, in their online information, Fidelity posts all their fund returns relative to the S&P 500 EXCEPT FOR their S&P 500 index fund. What supreme irony! HA! Anyway, I would rather not be limited to the selection offered by these weasels. How can I get my 401(k) fundage into a good investment vehicle (individual securities, Foolish Four, etc)?


To see what Fools do in instances like this, see Steps 3 and 4 of my 13 Steps to Foolish Retirement Planning. You'll find them at http://www.fool.com/Retirement/Retirement.htm . Basically, we say get all the FREE MONEY from any employer match. Beyond that level, check out your options and make returns comparisons of alternatives and the 401k on a tax-equivalvent basis. I'd explain it all, but it's in the steps and available for your reading pleasure already.

Regards….Pixy


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Thanks for your reccomendation Pixy...I went and read the Retirement Guide. The equation makes sense, figuring out how much return you'd have to make in a taxed vehicle versus a non-taxed vehicle.

However, when reading the Retirement Guide, I saw no mention of the tax deduction benefits of the 401(k). Do you consider the tax break to be largely negligible in favor of securing higher long-term returns in an IRA with individual stocks?

I am going to run these numbers in a big messy spreadsheet anyway at some point, but I just wondered what importance you place upon the present-day tax breaks afforded by the 401(k) or other tax-deductible plans.

Thanks,
Marimba.
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Marimba,

Thanks for your reccomendation Pixy...I went and read the Retirement Guide. The equation makes sense, figuring out how much return you'd have to make in a taxed vehicle versus a non-taxed vehicle.

However, when reading the Retirement Guide, I saw no mention of the tax deduction benefits of the 401(k). Do you consider the tax break to be largely negligible in favor of securing higher long-term returns in an IRA with individual stocks?

I am going to run these numbers in a big messy spreadsheet anyway at some point, but I just wondered what importance you place upon the present-day tax breaks afforded by the 401(k) or other tax-deductible plans.


Of course they're important. However, if the objective is to make money, then they cannot be the sole criterion in one's decision. The formula is intended to provide you that indifference point where investing in a tax-deferred versus in a taxable account results in the same net amount through the years. Too often we focus on avoiding taxes instead of netting more in our pocket. Thus, I avoid making a big deal over the tax break. It doesn't always make sense to take it That's especially true if like most Fools you are striving to be in the same or higher tax bracket in retirement than you are in now. If you expect to drop down a notch or two, then perhaps the tax deferred vehicle always makes more sense. If you do, though, you will be the rare one who doesn't care about improving your lot in life. :-)

Regards….Pixy

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The best I can do is Fidelity Spartan US Equity index fund. Here's a big laugh for you, in their online information, Fidelity posts all their fund returns relative to the S&P 500 EXCEPT FOR their S&P 500 index fund.

Probably because it is so close to the S&P 500 return. I have to agree with Nizac that you could be worse off. Actually, I think Fidelity Spartan US Equity Index is FUSEX which has an expense ratio of only .26, which is very nearly as low as you'll find. (Vanguard Index 500 is .19)

If you look at the 10-year returns of Fidelity, Vanguard, and S&P (as of 6/30), they are 18.28, 18.37, and 18.55.
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Quit and roll over to an IRA. Check your next employer's retirement options before you take the job. Or be happy your employer at leasts has a plan that you can chose to join.
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