401k Mutual Fund Selection | TigerDroppings.com
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elposter
Alabama Fan
Member since Dec 2010
9601 posts

401k Mutual Fund Selection

So, I just changed jobs and need to pick 401k mutual funds.

For a 35 year old that wants to be fairly agressive with mutual fund selection does the following make good enough sense:

S&P 500 Index Fund - 40%
Small/Mid Cap Index Fund - 40%
International Equity Fund - 10%
Emerging Market Fund - 10%

Or should I pick a 30 year target retirement date fund and just go with that? I worry this won't be agressive enough.

Is there any obvious downside to picking 4 funds rather than 1?

This is all Fidelity.

Any thoughts would be appreciated.


Vols&Shaft83
Tennessee Fan
Throbbing Member
Member since Dec 2012
26265 posts

re: 401k Mutual Fund Selection
quote:

S&P 500 Index Fund - 40%
Small/Mid Cap Index Fund - 40%
International Equity Fund - 10%
Emerging Market Fund - 10%



You're good. I'd lean a little more into international, but that's a good mix. And picking 4 funds is better than 1.


frick a target date fund.


elposter
Alabama Fan
Member since Dec 2010
9601 posts

re: 401k Mutual Fund Selection
quote:

frick a target date fund.


Why? I have heard this from people so I am hesitant to do it as well.

Too conservative? Not actively and well managed? Why don't you like them?


Volvagia
LSU Fan
Baton Rouge
Member since Mar 2006
41739 posts

re: 401k Mutual Fund Selection
Why do you hate target date retirement funds?

I wouldn't want it as my primary but outside of the risks inherent in forced allocation shifts what's bad about them?


Sigma
Michigan State Fan
Fairhope, AL
Member since Dec 2005
2385 posts

re: 401k Mutual Fund Selection
Vanguards target funds are great. Total stock market, total international and total bond market. I bet a lot of people who pick their own funds have a mix pretty close to that.


Volvagia
LSU Fan
Baton Rouge
Member since Mar 2006
41739 posts

re: 401k Mutual Fund Selection
Vanguard is the primary extent of my detailed offering knowledge.

The simplicity with good implementation is why I'm wondering what his problem with it is.

The only issue I see is the forced allocation shifts as you near retirement possibly coming at bad times.


Vols&Shaft83
Tennessee Fan
Throbbing Member
Member since Dec 2012
26265 posts

re: 401k Mutual Fund Selection
quote:

Why? I have heard this from people so I am hesitant to do it as well.

Too conservative? Not actively and well managed? Why don't you like them?





Target date funds have a lot of hands-on management. As a result, the expenses are higher than for standalone mutual funds. Guess who pays those high costs? You, that’s who. Since expense ratios are recognized as the best predictor of mutual fund performance, you shouldn’t take this point lightly.

Lifecycle (Target-Date) funds usually only tap into the funds of one fund family. Very few fund families excel in all areas. You may be better served by selecting the best funds from multiple fund families. Why restrict yourself?


Job One of any financial planner is to figure out a client's risk tolerance. Conservative investors will be slotted more into fixed income or money-market funds, while risk-lovers prefer to bet heavily on equities. Target-date funds, on the other hand, paint everyone of the same age with the same brush.



ETA: Vanguard Target Date funds have reasonable expense ratios though
This post was edited on 5/28 at 3:43 pm


jimbeam
USA Fan
University of LSU
Member since Oct 2011
37271 posts

re: 401k Mutual Fund Selection
I would think you could pull it out and relocate it later. But for now, if you just want to get your foot into the market, I don't see the difference in a target fund or buying Vanguard TSM and Vanguard International Totals.


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Sigma
Michigan State Fan
Fairhope, AL
Member since Dec 2005
2385 posts

re: 401k Mutual Fund Selection
quote:

ETA: Vanguard Target Date funds have reasonable expense ratios though


VTSMX 0.17%
VFORX 0.18%


Vols&Shaft83
Tennessee Fan
Throbbing Member
Member since Dec 2012
26265 posts

re: 401k Mutual Fund Selection
quote:

VTSMX 0.17%
VFORX 0.18%



Did you compare the returns for each of those? I'll save you the suspense, VTSMX wins in every time period....Considerably..... by at least 2% per year.

My Roth funds and my SEP funds beat VTSMX over the last 1,3, 5, and 10 year periods, btw.


vodkacop
LSU Fan
GOM
Member since Nov 2008
2405 posts

re: 401k Mutual Fund Selection
so having 100 of my contribution go into FSCRX, fidelity small cap discovery fund, isnt a good idea?


Vols&Shaft83
Tennessee Fan
Throbbing Member
Member since Dec 2012
26265 posts

re: 401k Mutual Fund Selection
quote:

so having 100 of my contribution go into FSCRX, fidelity small cap discovery fund, isnt a good idea?



100% in a small cap fund? Do you have any other funds?


vodkacop
LSU Fan
GOM
Member since Nov 2008
2405 posts

re: 401k Mutual Fund Selection
Nope I just picked the one best rated by morningstar


JPLSU1981
LSU Fan
Baton Rouge
Member since Oct 2005
17635 posts

re: 401k Mutual Fund Selection
Might be a tad aggressive there, lol.

I wouldn't put more than 25% in small/mid cap and not more than 25% in Intl, but that's just me. The bulk of your retirement (40-70%) should be in the S&P 500 or similar.

Small companies (and international companies for that matter) will perform the best over the long term generally speaking, but that's because they are the riskiest asset classes.

Not to mention, a portfolio should not be built on Morningstar ratings, it should be built around asset allocation and low expense ratios. Star ratings should only be a secondary consideration, not the primary and sole comsideration IMO.
This post was edited on 5/28 at 6:46 pm


Vols&Shaft83
Tennessee Fan
Throbbing Member
Member since Dec 2012
26265 posts

re: 401k Mutual Fund Selection
quote:

Nope I just picked the one best rated by morningstar



Ok, I love small cap funds, but you don't want 100% of your money going in them.

Let me put it this way: Small cap funds are like the head cheerleader, they're fun and exciting. But get married to one and she'll frick your best friend & leave you broke.

You need to allocate into some other categories in addition to the that crazy small cap bitch. Large Cap, Mid Cap, World Allocation.


gatorsimz
Florida Fan
cafe risque
Member since Feb 2009
5520 posts

re: 401k Mutual Fund Selection
Target funds aren't a bad idea when you're not working with an advisor. Vanguards are good. It's 2035 fund is 85% equity; I'd say that's aggressive enough for you.


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vodkacop
LSU Fan
GOM
Member since Nov 2008
2405 posts

re: 401k Mutual Fund Selection
well i would have to wait 90 days or i will incur a penalty but i could defintely change my contribution amount so more of my paycheck can get dispersed evenly.


JPLSU1981
LSU Fan
Baton Rouge
Member since Oct 2005
17635 posts

re: 401k Mutual Fund Selection
It's nothing yu need to stress over changing tomorrow or immediately, but yu should probably diversify your 401k a little bit whenever you get around to it in the next few months...put 25% into a large cap fund, 25% into an international fund, 25% into a different large cap fund, and 25% Into your current small cap fund.

Then let it go do its thing over time. As you get older start gradually moving a bond fund into the mix.
This post was edited on 5/28 at 7:04 pm


Vols&Shaft83
Tennessee Fan
Throbbing Member
Member since Dec 2012
26265 posts

re: 401k Mutual Fund Selection
quote:

well i would have to wait 90 days or i will incur a penalty but i could defintely change my contribution amount so more of my paycheck can get dispersed evenly.


Don't take anything out of that fund, just change the allocation slightly going forward.


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vodkacop
LSU Fan
GOM
Member since Nov 2008
2405 posts

re: 401k Mutual Fund Selection
so 25 percent in each is what im getting out of this. which is what i initially had me first few deposits lol .


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