Choosing funds for my 401(k)

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Re: Choosing funds for my 401(k)

"Silas Jacobbson" <> wrote

> I've been trying to find guidance on choosing the best mutual funds for my
> 401(k) plan, but I haven't found anything more detailed than "Diversify!"
> and other basic concepts.
>
> My goal is to have the best return possible in the long term. I have the
> 3-
> year, 5-year and 10-year rates for the mutual funds and bonds that I'm
> interested in, but I don't know if I should trust them (How do I know the
> high-interest earning ones weren't just profiting from the .com boom?)
>
> I can choose from large-cap, mid-cap, small-cap, international, blended
> funds and a few bonds, but I want to do more than just split my 401(k)
> equally among them.
>
> Any ideas?

There are many asset allocation tools available. Most of the major fund
companies offer free online tools.

Re: Choosing funds for my 401(k)

Silas Jacobbson wrote:
> I've been trying to find guidance on choosing the best mutual funds for my
> 401(k) plan, but I haven't found anything more detailed than "Diversify!"
> and other basic concepts.
>
> My goal is to have the best return possible in the long term. I have the 3-
> year, 5-year and 10-year rates for the mutual funds and bonds that I'm
> interested in, but I don't know if I should trust them (How do I know the
> high-interest earning ones weren't just profiting from the .com boom?)

The .com boom? Boy are you way behind the times.

>
> I can choose from large-cap, mid-cap, small-cap, international, blended
> funds and a few bonds, but I want to do more than just split my 401(k)
> equally among them.
>
> Any ideas?

Try doing some reading. Mutual Funds for Dummies, couple of others.

Re: Choosing funds for my 401(k)

First, is your entirement retirement portfolio in the 401(k), or do you have
an IRA and possibly another stash of money elsewhere designated for
retirement purposes?

You may have noticed the disclaimer, "past performance does not guarantee
future returns" (or similar words) in many a mutual fund prospectus. There
is no way to predict whether a mutual fund that's done well for the past x
years will continue to do well. Generally chasing returns has been shown to
be a poor strategy. Slow and steady wins the race, unless you want to
gamble.

There is evidence to support the superior long-term performance of low
expense ratio, no load index funds. Unfortunately, I don't think many 401k
plans offer such funds. So you'll have to do the best with what your 401k
offers and your other non-401k accounts, as you probably know.

Re diversifying: You indicate you know your best bet is a diverse allocation
among domestic large, medium, small caps; international; maybe REITS; and
bonds (both junk and high grade). Try the free online allocation tools I
listed for quick reference at
. They will all at least
recommend the bond/stock breakdown that is considered "appropriate" for your
age and risk tolerance. Some will provide a more detailed, suggested
breakdown. All help give one more experience in planning for retirement.

You may also want to repeat your question at the moderated newsgroup
misc.invest.financial-plan , to help obtain a good cross-section of
opinions.


"Silas Jacobbson" <> wrote
> I've been trying to find guidance on choosing the best mutual funds for my
> 401(k) plan, but I haven't found anything more detailed than "Diversify!"
> and other basic concepts.
>
> My goal is to have the best return possible in the long term. I have the
3-
> year, 5-year and 10-year rates for the mutual funds and bonds that I'm
> interested in, but I don't know if I should trust them (How do I know the
> high-interest earning ones weren't just profiting from the .com boom?)
>
> I can choose from large-cap, mid-cap, small-cap, international, blended
> funds and a few bonds, but I want to do more than just split my 401(k)
> equally among them.
>
> Any ideas?
>

Re: Choosing funds for my 401(k)

Sigh.........

Arne

"Elle" <> wrote in message
news:pXgse.5209>
>
> Re diversifying: You indicate you know your best bet is a diverse
> allocation
> among domestic large, medium, small caps; international; maybe REITS; and
> bonds (both junk and high grade).

Re: Choosing funds for my 401(k)

Elle wrote:

>There is evidence to support the superior long-term
>performance of low expense ratio, no load index funds.
>Unfortunately, I don't think many 401k plans offer such
>funds.

Index funds are common in 401k plans, but they're often fairly
expensive, at ~0.5%, and run by insurance companies.

Re: Choosing funds for my 401(k)

"R. Anton Rave" <> wrote in message
news:
>
>
> Elle wrote:
>
> >There is evidence to support the superior long-term
> >performance of low expense ratio, no load index funds.
> >Unfortunately, I don't think many 401k plans offer such
> >funds.
>
> Index funds are common in 401k plans, but they're often fairly
> expensive, at ~0.5%, and run by insurance companies.

Okay.

To take this further, and to satisfy my personal curiosity about Dimensional
Fund Advisors (DFA): Are funds run by DFA common in those 401k plans that
have index funds?

Whose index funds do 401k plans tend to buy (assuming only a few companies
predominate in such institutional index fund business)?

Re: Choosing funds for my 401(k)

"Elle" <> wrote

> To take this further, and to satisfy my personal curiosity about
> Dimensional
> Fund Advisors (DFA): Are funds run by DFA common in those 401k plans that
> have index funds?

DFA funds are not index funds.

Re: Choosing funds for my 401(k)

Elle wrote:
> "R. Anton Rave" <> wrote in message
> news:

>There is evidence to support the superior long-term
>performance of low expense ratio, no load index funds.
>Unfortunately, I don't think many 401k plans offer such
>funds.

>>Index funds are common in 401k plans, but they're often
>>fairly expensive, at ~0.5%, and run by insurance companies.

>To take this further, and to satisfy my personal curiosity
>about Dimensional Fund Advisors (DFA): Are funds run by DFA
>common in those 401k plans that have index funds?

DFA funds are high-minimum no-loads, probably available only through
advisors who believe in the DFA investment philosophy
(www.dfaus.com/philosophy), and the advisors tack on their own fees
ranging from roughly 0.2% to 1.5% of invested assets. Roughly (very
roughly), DFA believes in efficient markets but not the common
capital-weighted indexes (i.e., a company whose stock is worth $10B is
weighted 5x as much as one worth $5B). DFA funds seem to have
performed well but not hugely better than average, and I think low
costs (expenses and brokerage commissions) rather than strategy have
been responsible for the track records.

>Whose index funds do 401k plans tend to buy (assuming only a
>few companies predominate in such institutional index fund business)?

Almost anybody can make up an index fund, especially now with exchange
traded fund shares, which is why so many such funds exist with <$1B in
assets and high expense ratios (not real expenses but "we charge them
because we can" expenses).

Re: Choosing funds for my 401(k)

"R. Anton Rave" <> wrote
> Elle wrote:
> > "R. Anton Rave" <> wrote
> >There is evidence to support the superior long-term
> >performance of low expense ratio, no load index funds.
> >Unfortunately, I don't think many 401k plans offer such
> >funds.
>
> >>Index funds are common in 401k plans, but they're often
> >>fairly expensive, at ~0.5%, and run by insurance companies.
>
> >To take this further, and to satisfy my personal curiosity
> >about Dimensional Fund Advisors (DFA): Are funds run by DFA
> >common in those 401k plans that have index funds?
>
> DFA funds are high-minimum no-loads, probably available only through
> advisors who believe in the DFA investment philosophy
> (www.dfaus.com/philosophy), and the advisors tack on their own fees
> ranging from roughly 0.2% to 1.5% of invested assets. Roughly (very
> roughly), DFA believes in efficient markets but not the common
> capital-weighted indexes (i.e., a company whose stock is worth $10B is
> weighted 5x as much as one worth $5B). DFA funds seem to have
> performed well but not hugely better than average, and I think low
> costs (expenses and brokerage commissions) rather than strategy have
> been responsible for the track records.

You didn't answer my question.

Obviously DFA funds are only for registered investment advisors and
institutions, because their minimums are around 2 million dollars.

> >Whose index funds do 401k plans tend to buy (assuming only a
> >few companies predominate in such institutional index fund business)?
>
> Almost anybody can make up an index fund, especially now with exchange
> traded fund shares, which is why so many such funds exist with <$1B in
> assets and high expense ratios (not real expenses but "we charge them
> because we can" expenses).

Cripes, answer the question or don't post.

Re: Choosing funds for my 401(k)

"Elle" <> wrote

>> Index funds are common in 401k plans, but they're often fairly
>> expensive, at ~0.5%, and run by insurance companies.
>
> Okay.
>
> To take this further, and to satisfy my personal curiosity about
> Dimensional
> Fund Advisors (DFA): Are funds run by DFA common in those 401k plans that
> have index funds?

Why would they be? DFA doesn't offer but one index fund as far as I know.
That would be DFUSX.

Do you see another one:

Re: Choosing funds for my 401(k)

Idiot screen name wrote:
> "Elle" <> wrote
> > Are funds run by DFA common in those 401k plans that
> > have index funds?
>
> Why would they be? DFA doesn't offer but one index fund as far as I know.
> That would be DFUSX.


See the left side of site for a list of at least 10 other
DFA funds.

Yahoo's screener may cater only to small investors. Yahoo does give quotes
and other info for the funds listed at the site above.

Re: Choosing funds for my 401(k)

"Elle" <> wrote in message
news:jwBte.6533$
> Idiot screen name wrote:
>> "Elle" <> wrote
>> > Are funds run by DFA common in those 401k plans that
>> > have index funds?
>>
>> Why would they be? DFA doesn't offer but one index fund as far as I know.
>> That would be DFUSX.
>
>
> See the left side of site for a list of at least 10
> other
> DFA funds.

ifa.com is "index fund advisors". You should tell them that the funds listed
on the left are not index funds. DFA says they're not so that really doesn't
say much for the credibitity of ifa.com
You may also notice that all of the DFA funds on the left do not have the
word 'index' in their names. There is a reason for this.

Sometimes posters just say what they think instead of doing a little
research first. It makes them look bad. If you hade done a little homework
first your post above wouldn't be so rediculous.

> Yahoo's screener may cater only to small investors. Yahoo does give quotes
> and other info for the funds listed at the site above.

I didn't use a screener, I just sent you a link to their family of funds.
Do your homework:


The above link will take you directly to the Dimensional Fund Advisor
website, there you will learn that you are wrong. Being wrong is what you do
best though.

Re: Choosing funds for my 401(k)

Ms. Navorski, don't listen to those others. I happen to think you are very
sharp indeed.
I only wish these boards had more thinking people like you.

It would be great if you'd share you thougts on the current market here and
abroad. I'd love to know how you are invested.

"Elle" <> wrote in message
news:jwBte.6533$
> Idiot screen name wrote:
>> "Elle" <> wrote
>> > Are funds run by DFA common in those 401k plans that
>> > have index funds?
>>
>> Why would they be? DFA doesn't offer but one index fund as far as I know.
>> That would be DFUSX.
>
>
> See the left side of site for a list of at least 10
> other
> DFA funds.
>
> Yahoo's screener may cater only to small investors. Yahoo does give quotes
> and other info for the funds listed at the site above.
>
>
>

Re: Choosing funds for my 401(k)

"Slim" <> wrote
> "Elle" <> wrote
> > Idiot screen name wrote:
> >> "Elle" <> wrote
> >> > Are funds run by DFA common in those 401k plans that
> >> > have index funds?
> >>
> >> Why would they be? DFA doesn't offer but one index fund as far as I
know.
> >> That would be DFUSX.
> >
> >
> > See the left side of site for a list of at least 10
> > other
> > DFA funds.
>
> ifa.com is "index fund advisors". You should tell them that the funds
listed
> on the left are not index funds. DFA says they're not so that really
doesn't
> say much for the credibitity of ifa.com
> You may also notice that all of the DFA funds on the left do not have the
> word 'index' in their names. There is a reason for this.

Your criticism has merit. Rather than trying to parse all this, folks can go
to www.ifa.com and www.dfaus.com and sort it all out on their own. (That's
not to be dismissive of Slim's points. It's just to say all I'd be doing is
reproducing what's at these two sites.) I am not sure that DFA actually says
its funds are not index funds (in any way, shape or form). So I don't know
that IFA is exactly wrong. DFA's funds do have pretty low expense ratios,
but on the other hand DFA appears to be making up its own 'indices,' so DFA
funds are not all like funds such as Vanguard's VFINX, which strictly tracks
a publicly known index, the S&P 500. In this vein, at
misc.invest.financial-plan on June 15, 2005 I read the following assessment
of DFA by one of the regulars at that newsgroup:

"DFA is an index house. Their raison d'etre is to identify asset
classes they believe would be useful to index. They then go out and
create an index fund for that asset class. So the odds are that if
there's some asset class you want a piece of, DFA will have an index
fund for it."

I am not ready to wholly dismiss the characterization of DFA I gave, but I
think a little fine-tuning of it is certainly appropriate.

On the third hand, there is still the reality that, again, DFA funds appear
to be for institutional investors, with a min. investment required of
typically $2 million.

But I didn't check all its funds. People can do their own research at the
sites given.

Re: Choosing funds for my 401(k)

"Jack" <> wrote
> Ms. Navorski, don't listen to those others. I happen to think you are very
> sharp indeed.

Thank you. I do think the other poster ended making some fair points on this
matter, as I'm sure you know if you're a fair-minded guy. The important
thing AFAIC as that the end of the thread had more truth than the beginning
of the thread. Or the thread as a whole will. :-)

> I only wish these boards had more thinking people like you.
>
> It would be great if you'd share you thoughts on the current market here
and
> abroad. I'd love to know how you are invested.

I'll share if you share.

I think the U.S. stock market will be flat for around another five years,
because (1) things seem a bit overvalued as measured by conventional
indicators; (2) new investors are gunshy from the 2000-01 bubble bursting. I
don't know when the market's next serious growth period will be, so I
generally don't try to time. I simply look to company dividends to help the
growth along, as they did in the 1970s. Also, my CD/bond investments should
help the growth, too, if U.S. stocks remain secular bearish for the next
several years.

I believe interest rates will tend to go up for the next five years or so,
with a bit of cycling around a mean at times, because of the Fed Board's
inflation concerns. So I stay out of investment grade bond funds, except for
money market type funds, because I have the discipline to ladder bonds and
CDs and know the return will be better.

I do think it prudent to have a significant portion of international stocks
or at least in U.S. companies that do a lot of international business. My
instincts, driven by a lot of anecdotal reading, tell me that the world
outside the U.S. has more potential for economic growth. I am not so sure
the U.S. may not have some serious financial problems due to oil within a
decade or so. (Hubbert Oil peak stuff.) But if it does, I think innovation
will solve many of the problems and find alternative ways to provide energy
for transportation, heating, industry, etc.

Here in my mid-40s, I allocate using guidance from tools like those I have
listed at .

My current breakdown:
2% junk and international bond funds (I call these "higher risk")
8% REITS (mostly older ones, small to large)
33% CDs/investment grade bonds, laddered ultimately for five years
57% almost all U.S. stocks, mostly large value or large blend but I plan to
shift 10 to 20% of this to international and small/mid stocks, soon.

I think my background is relevant here, since the part of a cycle in which a
young investor begins investing seems to affect their attitude for a number
of years. I think I started investing at what turned out to be a good time:
In mutual funds in 1983 with my first professional job. My father advised me
to put all my Fortune 500 company's pension/retirement portfolio into any
old blue chip mutual fund the company offered. Some gal at the Human
Relations office helping me decide (sort of) also made a comment about how
she wished she hadn't thrown all her pension money into U.S. treasuries when
she started working. Now she was playing catchup with mutual fund
investments. (Remember, there was no internet to research questions like
this. It was a lot more work back then to learn how to plan financially on
one's own.) It all made some sense "to roll the dice on stocks." As a young
kid I wasn't sure of what I was doing, so I really did feel like I was
gambling, but the few points my dad and this gal had made were enough. Plus,
my Fortune 500 pay was so high and I was putting away so little in
comparison that I did not think too much about it. So I bought into the
company's blue chip mutual fund for my pension/retirement savings, maxing it
out, of course. I received some company stock over the years, too, and
watched it. I started a traditional IRA around 1984. Then in 1986 I made my
first individual stock purchases. My criteria for my picks: I checked what
other blue chip mutual funds held and saw what stock positions they had in
common. Also, I had to understand how the company made its money. I wouldn't
have been comfortable, otherwise.

Fortunately, the market enjoyed a few good years and by early 1987, I was
thinking, hey, good deal! I went to graduate school in fall 1987, on an
assistantship so I was not dipping into savings. October Black Monday 1987
came. I lost a huge portion of my portfolio but honestly just shrugged my
shoulders and joked with friends about how I "lost thousands" on the crash
the other day. Eighty percent of a lot of money is still a lot of money. I
didn't sell. I had no money to buy. I just let all my investments sit. Of
course everything rebounded nicely within a few years. But I didn't know
they would back then. So now I have the benefit of having weathered this
financial history, and I look on 2000-2001 in a similar way as that period.

I don't think financial planning is rocket science. I think a competent high
school graduate with good math grades could become a competent financial
planner with another year of study of history and economics, focused on
market behavior over time and the reasons behind it. My sense is that there
are a lot of "successful" financial advisors and stock brokers out there
simply because... stocks go up. These folks don't have some sort of arcane
knowledge. If they preach the fundamentals, they'll do fine. But anyone with
a high school diploma and good math grades can do fine at investing, too,
IMO.

I find some of the discussion at some financial newsgroups a little too
academic (to the point of foolishness unless one is trying to get promoted
to a full professor of finance) and therefore, irrelevant. The reality is
that there is a lot of uncertainty in exactly what, say, the best allocation
would be for anyone. That is, it could be that 4% REITs is a better idea
right now than 8% REITs. Or maybe 12% REITs will turn out to have been
better. I think one can only ballpark allocations and that applying strict
mathematics to diversification models, whose many assumptions have large
margins of error, supports my contention.

What do you think the market will do? How do you invest?

Re: Choosing funds for my 401(k)

"Elle" <> wrote

> What do you think the market will do? How do you invest?

Well, I think the U.S. is probably one of the strongest right now but I also
agree that it's expensive. Europe looks about the weakest. Latin America
looks strong too but I think there is a lot of risk in those markets. Asia
hasn't been doing much. The U.S. dollar seems to be doing better, could be
bad for the trade deficit but I think that is broken permanently anyway. As
long as Americans know that they are doing this to themselves when they buy
foreign goods. Pretty hard not to buy them these days.

I'm mostly a value investor. My current portfolio is 39% in cash, 38% in
U.S. value, 16% foreign stocks, 4% bonds. This is according to Morningstar
Xray. I'm hoping for a sizable drop in prices before fall so I can put the
cash to work.

Right now I think energy, utilities, and healthcare are doing best, health
care seems to be trying to grab leadership but is having a difficult time.

Re: Choosing funds for my 401(k)

"Jack" <> wrote
> "Elle" <> wrote
>
> > What do you think the market will do? How do you invest?
>
> Well, I think the U.S. is probably one of the strongest right now but I
also
> agree that it's expensive. Europe looks about the weakest. Latin America
> looks strong too but I think there is a lot of risk in those markets. Asia
> hasn't been doing much.

India's stock market (Sensex average?) rose to a record high today,
anyway...

Regardless, you sound better studied on foreign stocks than I, and that
study will hopefully ultimately pay off. I'm content with something like
FSIIX and FNMIX now, mostly out of laziness and faith that U.S. companies
with large international sales know what they're doing. (Though even if they
do, I'm likely not hedging currency risk optimally.)

> The U.S. dollar seems to be doing better, could be
> bad for the trade deficit but I think that is broken permanently anyway.
As
> long as Americans know that they are doing this to themselves when they
buy
> foreign goods. Pretty hard not to buy them these days.
>
> I'm mostly a value investor. My current portfolio is 39% in cash, 38% in
> U.S. value, 16% foreign stocks, 4% bonds. This is according to Morningstar
> Xray. I'm hoping for a sizable drop in prices before fall so I can put the
> cash to work.

I am tempted often to do a little (more?) timing, particularly given (1) my
inclination that the market will be flat for several more years; and (2) the
see-sawing of certain stock positions I have now. I am in fact waiting for a
certain stock to come down to its 52-week low.

> Right now I think energy, utilities, and healthcare are doing best, health
> care seems to be trying to grab leadership but is having a difficult time.

Health care as an investment scares me, because I feel like the system is
going to implode at any moment, and the government will take over. The
masses will cheer but health stocks will dive.

I'll leave the details for some other time. I continue to hold some health
care positions, albeit with trepidation.

Re: Choosing funds for my 401(k)

Elle wrote:
> "R. Anton Rave" <> wrote

>Are funds run by DFA common in those 401k plans that
>have index funds?

>>DFA funds are high-minimum no-loads, probably available
>>only through advisors who believe in the DFA investment
>>philosophy

>You didn't answer my question.

Why don't you just search the Internet for "DFA 401K" if you're
choosing a 401K for your company? I wouldn't expect any plans with
them to be particularly cheap.

>Obviously DFA funds are only for registered investment
>advisors and institutions, because their minimums are
>around 2 million dollars.

A $2M minimum wouldn't itself prevent direct investment by some
individuals.

>Whose index funds do 401k plans tend to buy (assuming
>only a few companies predominate in such institutional
>index fund business)?

>>Almost anybody can make up an index fund, especially
>>now with exchange traded fund shares, which is why so
>>many such funds exist with <$1B in assets and high
>>expense ratios (not real expenses but "we charge them
>>because we can" expenses).
>
>Cripes, answer the question or don't post.

I answered "insurance companies," but you obviously disliked the
answer.