33 years old and just started a 401k..need some advice

**snafu** · 06-28-2011, 10:07 PM

The 1st thing you need to know are the fees you are charged and the Management Expense Rate often stated as MER. The higher the MER the less is left for unit holders. 2nd you need to know how these particular funds stack up against their peers. You can look that up on line via Morningstar one of the better known rating agencies. 3rd everyone needs some level of income fund or ETF [exchange traded fund] in case the 08/09 scenario repeats. We used to do an age minus 100 ratio; something like 30% Bond, 70% equity.

We all have different goals and different objectives to meet those goals long term. Since you feel you can tolerate risk, my personal suggestion for 1st year contribution would be dedicated to the the best rated, lowest MER Dividend Fund, re-investing dividends. Have a look at the top 10 holdings in your existing AF Growth Lg. Cap Fund and Fidelity's 2045 as they may primarily hold dividend paying stock.

Don't track your holdings daily or you will get upset. In these crazy days the market is even more illogical than usual and gyrates on the emotion of the hour. Year two, after a review of the economy and the sum accumulated, you might switch contributions to include an Income/Bond MF [if as expected, interest rates increased] to reflect 30% of 401K allowable 2012.

I also like Index funds when you have looked at the companies represented and feel comfortable with the added risk. The whole world is available via International Funds sometime in the future. "Buy and hold" philosophy is too dangerous in these turbulent times. You care about your money more than others and there are times when it's advantageous to change your program to better reflect the economy.

**jteezie** · 06-29-2011, 01:38 AM

I only very quickly looked at the fee structure of your choices. They are expensive. Firstly, any lifepath (meaning targeted retirement date funds i.e. 2045), are really expensive and should be avoided.

Your other 2 have around 1% expense ratios, that means you are losing 1% return every year.

At your age (well any age), you should aim to minimize expense ratios. I think the lowest expense ratio is the Vanguard Inst Index, but it is only US stocks. Put maybe 20% into that maybe Vanguard Institutional Index Instl Report (VINIX) | Asset Allocation Summary

Sorry, it's super late and that's the extend of my research, but the key is to find low expense ratios and diversify.

**disneysteve** · 07-02-2011, 03:59 PM

Originally posted by jteezie View Post

any lifepath (meaning targeted retirement date funds i.e. 2045), are really expensive and should be avoided.

This is an overly broad generalization. Target date funds aren't necessarily expensive.

The Fidelity 2045 fund mentioned here has an expense ratio of 0.79%. Not great but not horrible either.

In comparison, the equivalent 2045 fund from Vanguard, not one of your choices unfortunately, charges only 0.19%. That is not expensive at all and may be a very reasonable choice for someone's portfolio, perhaps in a Roth account.

**MonkeyMama** · 07-02-2011, 05:28 PM

Actually, I thought that "funds of funds" were inherently more expensive. Because you pay fees on each individual fund and then an additional fee for the overall mutual fund itself.

I think this is what jteezie is getting at.

That said, I personally don't agree that makes them so expensive as to be avoided. To pay an additional 0.19% to have VG manage a 2045 retirement portfolio is not overly extreme. When it comes to less discounted brokers, I agree the costs add up a lot quicker. VG is on the cheap end of the spectrum.

**Petunia 100** · 07-02-2011, 09:27 PM

Not all fund families charge expenses on fund-of-funds over and above the expenses of the underlying funds. Vanguard absolutely does not. According to Morningstar, Fidelity Freedom funds do not either.

http://financials.morningstar.com/fund/expense.html?t=FFFGX&region=USA&culture=en-us

Kevin, the portfolio you have chosen isn't bad. Personally, I think it is a bit light on foreign stocks. If I were participating in this particular 401k plan, I would be tempted to build it around VG Institutional Index, with its beautiful .05% expense ratio. I'm less excited about your fixed income choices. I'd avoid both the stable value and money market and go for intermediate bond. Pimco total return is an intermediate bond fund, btw, with an outrageous expense ratio of .71%. Still, you need some fixed income. Looks like your only foreign choice is Fidelity International Discovery with an expense ratio of 1%, also on the high side. Throw in some small or mid caps to round it out. I would choose small value over mid value, but you have already chosen mid value so I will leave that alone. The portfolio might look something like this:

40% VG Inst Index ER .05
30% Fid Intl Disc ER 1.00
20% Artisan Mid Val ER 1.21
10% Pimco Total Ret ER .71

That's a weighted expense ratio of .63%. Not bad. Compared with many employer plans, its downright inexpensive.

Or, you might just go with the Freedom Fund (.79%) for the bulk of your portfolio. I would add some small value though. If you look at the MorningStar snapshot, you can see that 22% of the fund is in midcaps but only 6% is small and only 1% is small value. Looks like your only small value choice is WFA small value. I can't find it on MorningStar, so don't know about its record or expense ratio. Royce Value Plus is actually a growth fund with a poor record, so I would steer clear.

**kv968** · 07-03-2011, 05:05 AM

Every "Target Retirement Fund" I've seen pretty much charges about what an average fund in their fund family does. Although some fund families are more expensive than others (i.e. American Funds vs. Vanguard), the target fund they offer is usually comparable with most of their others, maybe a few basis points higher.

33 years old and just started a 401k..need some advice