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sockiboo writes:

my first question: is it lame to pump cash into a 401k plan that seems likely to die in three months, leaving me invested in funds i paid a fee for? i can roll them over if the plan ends, but i lose the money i paid in fees. and if i keep them at MFS i'm still stuck in an actively managed fund with a higher expense ratio (three or four times higher!) than i'm used to at vanguard.

It might still be your best choice -- the 401(k) is still a good benefit. In three months, depending on your income, you may be able to save a significant amount of money. If you plan on having an IRA anyway, it doesn't seem so bad. However, even if you end up stuck in the 401(k) for a while with no index funds, it's still a huge benefit. You may end up paying 1% expense ratios, but you're avoiding about 40% in federal and state taxes and you can put away more money than you can with an IRA.

If I was stuck in managed funds, I would probably divide my money among the funds with the highest R-squared values and lowest expenses and make sure I was balanced between growth and income -- in other words, I would try to simulate the S&P 500 as much as possible. For example, Fidelity Magellan has an R-squared of 0.95 (1.00 equals the S&P 500) and an expense ratio of 0.5%. The only other caveat is that you want to try to avoid any load on your funds if possible. A lot of 401(k) plans are exempt from load ("NAV pricing") even on loaded funds, so you may need to check with your 401(k) plan provider or your Human Resources department.

This is probably also a good point to lobby for a low-cost index fund to be added to your plan -- participation is low, perhaps this is one of the reasons why. There's a standard 401(k) letter to your employer at http://www.fool.com/money/401k/401k.htm that you could modify for the task.

- BlueAdept
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