I have 5 funds in my 401(k). The year-to-date returns have been prettyblah so far-except for the small-cap value fund. It is showing a little over 10% gain for the year.Is it a good idea to move some money out of the other funds and ride the small-cap horse for awhile, then rebalance later in the year, or whenever the other funds show a pulse?I know riding one fund is not good for the long term, but how about short term?
Moving money into the small-cap fund would be performance-chasing. That's hard to do right because it's when the fund has its greatest gain that you need to get out of it. Rebalancing to re-establish the desired asset allocation is how you "buy low and sell high".You can't have any of that 10% gain. It's gone now. What you should do is decide on a desired asset allocation (large-cap, mid-cap, small-cap domestic/international; long-term/short-term government/agency/corporate bonds; money markets) and stick with it.
Right now I have S&P 500, dividend growth, small-cap value, international, and a little bond.My timeframe is at least 15 years so I'm weighted towards the 1st 3, with lesser amount in international and less in bonds.So staying balanced is better than trying to guess which one will be hot for awhile, evidently.Course if I hit the lottery, my timeframe shrinks to as long as it takes me to get to the phone and call in rich! Yeah, that'll happen.
Greetings CentexHorn,I have 5 funds in my 401(k). The year-to-date returns have been pretty blah so far-except for the small-cap value fund. What are the rankings of these funds against their peers? Also, these are just 3 month returns you're comparing you realize right? http://www.barra.com/research/summary_returns.asp notes returns from 9 indices that somewhat correspond to Morningstar's 9 style boxes for US stocks that some would say show blah returns except for the Mid-cap 400 Value and Small-cap 600 Value that show returns of 9.93% and 10.25% respectively. It is showing a little over 10% gain for the year.This so needs context. What are small-cap value indices returns so far this year and what is the average small-cap value fund's return in this time frame as that 10% could be great, good, blah, poor or sad, IMO.Is it a good idea to move some money out of the other funds and ride the small-cap horse for awhile, then rebalance later in the year, or whenever the other funds show a pulse?If you want to try some technical analysis on funds to try to time movements back and forth fine but I don't do that. I believe in having an asset allocation that I will stick with over the long haul that suits my risk tolerance and is a low maintainence form of investing from my view.I know riding one fund is not good for the long term, but how about short term? NO! One fund can be great for the long term if it has what you believe you're asset allocation will be over the long term as some people may use a kitchen sink fund and then nothing else. If you want to trade funds over the short term within your 401(k) then you may want to look at a site or two that does this such as joelxwil's site at http://www.actwin.com/kalostrader/Right now I have S&P 500, dividend growth, small-cap value, international, and a little bond.Which category is dividend growth? Large-cap blend or value?I think the big question you have to ask yourself is what overall strategy are you trying to use with those mutual funds as well as whether or not some of those have an overlap that you may or may not realize. For example, if that dividend growth fund is Fidelity's Dividend Growth fund then I think it only fair to say that this fund over the past 3 years has an 85% co-relation with the S & P 500 so in many ways it is in synch with that index which isn't as hot as small-cap value. http://quicktake.morningstar.com/Fund/RatingsAndRisk.asp?Country=USA&Symbol=FDGFX is a source for my figure that will change each month somewhat I suspect.For myself, I hold 5 funds in various categories and have various results with them where my mid-cap value fund is doing the best although my large-cap funds should come back over time as markets do rotate as noted over the past 20 years by http://www.callan.com/resource/periodic_table/pertable.pdf that I think may be worth a good look to see this as in the late 1990s large-cap growth did well and now it is way down while small-cap value has done really well in 2000 and 2001 as measured by the Russell 2000 Value index.Just some food for thought,JBPS - Keep the questions coming if you have them.
By "staying balanced" I don't mean "leaving everything alone"; I mean occasionally transferring from one of those to the other so they stay in the same relative proportion to each other.This method doesn't work well if one of the groups takes off and stays high, or if one of the funds drops to nil.
Now I remember why I don't have a midcap. The only midcap offering of any kind in my 401(k) has a sales load of 5.5% and an expense ratio of1.04.
Greetings CentexHorn,The only midcap offering of any kind in my 401(k) has a sales load of 5.5% and an expense ratio of 1.04. Ah, but does your 401(k) plan mention anything about loads being waived or using a no-load share class for the funds offered? For example, a front-load mutual fund like Fidelity Advisor Mid-cap A(FMCDX) shares have a 5.75% front-end load and a 1.07% expense ratio. However, the Institutional share class of the same fund(FMCCX) has no loads and a .73% expense ratio but the same manager and portfolio according to what I see by looking up the fund on Morningstar and I suspect most 401(k)s would be able to have loads waived if there are sufficient assets in the plan. Regards,JB
JB,I'll have to research that point.Another question. You mentioned that FDGFX pretty much mirrors the S&P 500 fund.Would a Russell 1000 Growth or a Russell 1000 Value be a better choice?
Rather than attempt to answer that question (which I can't really do for you), I would suggest that you think about Morningstar University. It requires registration, but other than that it is free except for your time, and you can even earn free merchandise by taking the classes apparently. I have found the classes (and the site in general) to be very beneficial. It has greatly increased my confidence in evaluation investment options. The classes are in plain English and quite easy to follow for the most part.Go to...http://www.morningstar.com/Cover/University.html...and click on the "Get Started: Course Catalog" link.Thanks!JoeNot affiliated with Morningstar except as a user.
Greetings Centex,You mentioned that FDGFX pretty much mirrors the S&P 500 fund.Would a Russell 1000 Growth or a Russell 1000 Value be a better choice?Possibly. You'd have to check those R-squareds as well as what statistic matters more to you since there are competing ideas here:1) Low co-relation between investments. The idea here is to find a fund that will move rather differently from something you are invested in and so your small-cap value and S & P 500 index likely have this. For example, Fidelity Low-Priced Stock(FLPSX) has an R-squared of 50 with the S & P 500 so while the S & P 500 has had some declines this fund has performed rather differently.2) Higher returns. This is more tricky since there are various routes one can take to achieve this from concentrating on that best performing sector and rotating as needed to catch shifts in the market OR some may just use lazy portfolios such as a few examples of which are described in http://boards.fool.com/Message.asp?mid=16957242. On one level I think there should be a question of what kind of spicy returns do you want to see and are you prepared for both kinds? Technology, gold and emerging markets funds are quite spicy in terms of being volitile if that is what you seek from your investments while blah should be expected from bonds in most cases.Regards,JB
JB,According to my info, since my 401 plan meets certain criteria, I can get the midcap offering for the NAV price, without the sales load.It is AIM aggressive growth A (aagfx).
jb,In general wouldn't a Russell 2000 Value index be less likely to mirror the S&P 500 index than the Russell 2000 Growth index?
Greetings CentexHorn,In general wouldn't a Russell 2000 Value index be less likely to mirror the S&P 500 index than the Russell 2000 Growth index?No, in theory they should be equally diverse as they are a separate group of stocks usually. However, I have no links to back up that idea nor do I know of any place to find that data although I would note there is a 30% overlap between those Russell indices.One intriguing note though is that there is something called the "Small-cap growth anamoly" that is discussed in http://www.efficientfrontier.com/ef/499/scg.htm that may be of some interest.Regards,JB
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