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It's current value is less than half that of the value/income fund and doesn't appear to be performing as well.

By "value" do you mean price? The price of a mutual fund is is the total value of the assets in the fund divided by the number of shares, but the number of shares is arbitrary.

Nothing much has been peforming well over the past 18 months. (Yes, Virigina, there is a bear market.) You need to think in terms of decades, not months, in your 401k.

Ususally, a broad market index fund in the long term will beat most of the managed funds available (particularly a Value and Income fund, which probably isn't really trying to beat the S&P500), in part because it is cheaper to manage and, in part, because the folks who manage funds usually aren't really smarter than everyone else, at least when it comes to investing. So index funds are often the way to go, depending on which index your employer offers.

And what about diversifying?

It's probably a good idea to spread things around a bit, so one idiot fund manager doesn't ruin your entire retirement :). Without knowing more about you (your age, your other assets, etc) and your 401k plan (the funds available, etc), any specific advice about diversification would just be guessing.

Good luck,
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