young professional needs 401K & IRA tips, how to pick funds?

[lootpacman]

Hi Everyone,

Young professional and recent college graduate. Need some assistance on picking the funds for my IRA (had to rollover from former company) and also my current 401K.

The challenge is knowing which funds to pick (especially for the IRA). Using the company's default fund for my 401K.

Here it goes:

IRA funds I have now (not sure what the split is but it's close to a 60-40-20):
-SPARTAN 500 INDEX FD ADVANTAGE CLASS (FUSVX)
-BAIRD MID CAP INVESTORS CLASS SHS (BMDSX)
-FIDELITY CONTRAFUND (FCNTX)

401K:
-FID FRDM INDX 2055 (FDEWX)

Would like to hear the suggestions from you guys on how to approach splitting and choosing funds.

-LPM

[Petunia 100]

Hi Everyone,

Young professional and recent college graduate. Need some assistance on picking the funds for my IRA (had to rollover from former company) and also my current 401K.

The challenge is knowing which funds to pick (especially for the IRA). Using the company's default fund for my 401K.

Here it goes:

IRA funds I have now (not sure what the split is but it's close to a 60-40-20):
-SPARTAN 500 INDEX FD ADVANTAGE CLASS (FUSVX)
-BAIRD MID CAP INVESTORS CLASS SHS (BMDSX)
-FIDELITY CONTRAFUND (FCNTX)

401K:
-FID FRDM INDX 2055 (FDEWX)

Would like to hear the suggestions from you guys on how to approach splitting and choosing funds.

-LPM

Decide on your asset allocation first, then choose funds to flesh it out.

The first decision is how much in stocks/bonds. The second decision is how much of stocks in domestic/foreign. The decisions after that have less of an impact.

It looks like you are doing a good job keeping costs low. That's great, because costs compound against you and will take a huge bite out of your nest egg if you let them.

[autoxer]

I can't recommend an asset allocation, because I can't even decide one for myself, but I can say be aware of the expense ratio's of the funds that you choose. BMDSX has an expense ratio of 1.1%, while FUSVX has an expense ratio of 0.05%. An actively managed fund has more expenses than an index fund, so it really has to do well compared to the index to make up for higher expenses. One percent in expenses may seem small, but compounding over many years will create a huge drag on the performance.

Also, it looks like FIDELITY CONTRAFUND (FCNTX) is a large cap growth fund, which has some overlap with your SPARTAN 500 INDEX. Both funds hold Apple, Microsoft, Berkshire Hathaway, Wells Fargo... etc. It isn't necessarily a bad thing, just makes it more complicated to figure out what your actual allocation is.

[lootpacman]

I can't recommend an asset allocation, because I can't even decide one for myself, but I can say be aware of the expense ratio's of the funds that you choose. BMDSX has an expense ratio of 1.1%, while FUSVX has an expense ratio of 0.05%. An actively managed fund has more expenses than an index fund, so it really has to do well compared to the index to make up for higher expenses. One percent in expenses may seem small, but compounding over many years will create a huge drag on the performance.

Also, it looks like FIDELITY CONTRAFUND (FCNTX) is a large cap growth fund, which has some overlap with your SPARTAN 500 INDEX. Both funds hold Apple, Microsoft, Berkshire Hathaway, Wells Fargo... etc. It isn't necessarily a bad thing, just makes it more complicated to figure out what your actual allocation is.

Here are pics of my current funds and splits (check the attachments):

And these are the options I am currentlying considering switching over to (for the IRA):
Investments (Index Funds):

Foreign:
-Spartan® International Index Fund - Investor Class (FSIIX)
-Spartan® Global ex U.S. Index Fund - Fidelity Advantage Class (FSGDX)

Domestic:
-Spartan® Mid Cap Index Fund - Investor Class (FSCLX)
-SPARTAN 500 INDEX FD ADVANTAGE CLASS (FUSVX)
-Fidelity® Large Cap Stock Fund (FLCSX)

[autoxer]

I didn't see any attachments.

Foreign:
-Spartan® International Index Fund - Investor Class (FSIIX)
-Spartan® Global ex U.S. Index Fund - Fidelity Advantage Class (FSGDX)

These two look so similar, you could probably just flip a coin and not go wrong.

Domestic:
-Spartan® Mid Cap Index Fund - Investor Class (FSCLX)
-SPARTAN 500 INDEX FD ADVANTAGE CLASS (FUSVX)
-Fidelity® Large Cap Stock Fund (FLCSX)

I would avoid the last one (FLCSX). It also owns many of the same stocks as FUSVX, but carries higher expenses.

[jIM_Ohio]

Decide on your asset allocation first, then choose funds to flesh it out.

The first decision is how much in stocks/bonds. The second decision is how much of stocks in domestic/foreign. The decisions after that have less of an impact.

It looks like you are doing a good job keeping costs low. That's great, because costs compound against you and will take a huge bite out of your nest egg if you let them.

+1

The fund selection matters less than the allocation

For example, start with a 60-40 stock bond percentage. As long as you maintain the 60-40, about 80% of your performance will come from that allocation, not the funds which make it up.

Then break it down further
% domestic and % foreign. You want at least 25% foreign holdings, and no more than 50%. Because the dollar is getting stronger, foreign will underperform short term, especially foreign large cap.

Then break it down further
% large cap
% small cap
% foreign large
% foreign small
% US govt bonds
% US corporate bonds
% junk bonds
% foreign govt bonds
% foreign corp bonds
% foreign junk bonds
% cash

For example, if portfolio is 60-40
and it is 70% domestic 30% foreign
and the further breakdown is

10% S&P 500 index fund (large cap)
10% mid cap index
10% small cap index
10% foreign large cap
10% emerging market
10% technology fund
10% US govt bond
10% high yield bonds
10% emerging markets bonds
10% cash

This is 60-40 stocks-bonds, and 70-30 domestic-foreign

that portfolio would likely do about the same as

20% S&P 500
20% domestic small cap
20% foreign large cap
20% domestic bond index
20% foreign bond index

This is 60-40 stock bond and 60-40 domestic foreign. The difference between the two would be minimal. I would say the first one would likely have better performance because it had 2-3 highly volatile asset classes added (emerging markets stock, emerging markets bond, and the technology fund).

The goal when establishing allocation is to add assets which are not correlated and balance money between them.

[feh]

Here are pics of my current funds and splits (check the attachments):

And these are the options I am currentlying considering switching over to (for the IRA):
Investments (Index Funds):

Foreign:
-Spartan® International Index Fund - Investor Class (FSIIX)
-Spartan® Global ex U.S. Index Fund - Fidelity Advantage Class (FSGDX)

Domestic:
-Spartan® Mid Cap Index Fund - Investor Class (FSCLX)
-SPARTAN 500 INDEX FD ADVANTAGE CLASS (FUSVX)
-Fidelity® Large Cap Stock Fund (FLCSX)

The primary difference between IIX and GDX is exposure to emerging markets. GDX is exposure to all non-US markets, where IIX is developed only. I use GDX.

For domestic, use the 500 index, if total market is not available (FSTVX).

[lootpacman]

I didn't see any attachments.


These two look so similar, you could probably just flip a coin and not go wrong.


I would avoid the last one (FLCSX). It also owns many of the same stocks as FUSVX, but carries higher expenses.

Oops, here are the attachments.

[lootpacman]

+1

The fund selection matters less than the allocation

For example, start with a 60-40 stock bond percentage. As long as you maintain the 60-40, about 80% of your performance will come from that allocation, not the funds which make it up.

Then break it down further
% domestic and % foreign. You want at least 25% foreign holdings, and no more than 50%. Because the dollar is getting stronger, foreign will underperform short term, especially foreign large cap.

Then break it down further
% large cap
% small cap
% foreign large
% foreign small
% US govt bonds
% US corporate bonds
% junk bonds
% foreign govt bonds
% foreign corp bonds
% foreign junk bonds
% cash

For example, if portfolio is 60-40
and it is 70% domestic 30% foreign
and the further breakdown is

10% S&P 500 index fund (large cap)
10% mid cap index
10% small cap index
10% foreign large cap
10% emerging market
10% technology fund
10% US govt bond
10% high yield bonds
10% emerging markets bonds
10% cash

This is 60-40 stocks-bonds, and 70-30 domestic-foreign

that portfolio would likely do about the same as

20% S&P 500
20% domestic small cap
20% foreign large cap
20% domestic bond index
20% foreign bond index

This is 60-40 stock bond and 60-40 domestic foreign. The difference between the two would be minimal. I would say the first one would likely have better performance because it had 2-3 highly volatile asset classes added (emerging markets stock, emerging markets bond, and the technology fund).

The goal when establishing allocation is to add assets which are not correlated and balance money between them.

This looks like a good approach. I'll do some more research and apply this...I will post an update soon this weekend.

[feh]

This looks like a good approach. I'll do some more research and apply this...I will post an update soon this weekend.

I'm not disagreeing w/ Jim, but I do suggest you take your time before taking any action. Do some reading.

This is a great place to start: http://www.bogleheads.org/wiki/Bogle...g_start-up_kit

[lootpacman]

I'm not disagreeing w/ Jim, but I do suggest you take your time before taking any action. Do some reading.

This is a great place to start: bogleheads dot org

@feh,

Thanks for the suggestion. I already started reading your blog yesterday (my IRA is losing each day so will pick more stable funds and not all stocks)

[jIM_Ohio]

This looks like a good approach. I'll do some more research and apply this...I will post an update soon this weekend.

Make sure you know what the difference between a foreign and domestic stock is.
Know the difference between a stock and a bond.
Know the difference between a large cap and small cap stock.

Investing takes some reading, and my suggestion is to read 3-5 different magazine articles to start.

If the 5 articles suggest something similar or the same, then it is likely a good idea.
If one of them says something very different, have enough intelligence to question why.

I would start with reading magazine articles because they are short. Kiplingers, smart money, money and a few others.

Then go to mutual fund websites- vanguard, t rowe price and fidelity for example.

Then read etrade or TD Ameritrade.

Each of those sites likely has an investor education section.
The bogleheads forum references will have good information too.

[lootpacman]

Make sure you know what the difference between a foreign and domestic stock is.
Know the difference between a stock and a bond.
Know the difference between a large cap and small cap stock.

Investing takes some reading, and my suggestion is to read 3-5 different magazine articles to start.

If the 5 articles suggest something similar or the same, then it is likely a good idea.
If one of them says something very different, have enough intelligence to question why.

I would start with reading magazine articles because they are short. Kiplingers, smart money, money and a few others.

Then go to mutual fund websites- vanguard, t rowe price and fidelity for example.

Then read etrade or TD Ameritrade.

Each of those sites likely has an investor education section.
The bogleheads forum references will have good information too.

This sounds good. Will have to do some reading later tonight.

Here's what I have so far for my potential portfolio:

Stock/Index Funds:

10% Technology Fund (FSCSX)
10% Foreign Large Blend (FSGDX)
10% Foreign Small Blend (FDIVX)
10% Domestic Large Cap (FUSVX)
10% Domestic Small Cap (FSSVX)
10% Domestic Mid Cap (FDVLX)

Bonds:
20% Intermediate Treasury Bond (FIBAX)
20% U.S. Bond Index Fund (FSITX)

Feedback is appreciated.

[feh]

This sounds good. Will have to do some reading later tonight.

Here's what I have so far for my potential portfolio:

Stock/Index Funds:

10% Technology Fund (FSCSX)
10% Foreign Large Blend (FSGDX)
10% Foreign Small Blend (FDIVX)
10% Domestic Large Cap (FUSVX)
10% Domestic Small Cap (FSSVX)
10% Domestic Mid Cap (FDVLX)

Bonds:
20% Intermediate Treasury Bond (FIBAX)
20% U.S. Bond Index Fund (FSITX)

Feedback is appreciated.

Seems unnecessarily complicated to me.

Check out the 3 fund portfolio (must be on the wiki article I pointed you to) at bogleheads. All you really need is total US, total ex-US and intermediate bond (ie. FSTVX, FSGDX, FSITX).

[lootpacman]

Seems unnecessarily complicated to me.

Check out the 3 fund portfolio (must be on the wiki article I pointed you to) at bogleheads. All you really need is total US, total ex-US and intermediate bond (ie. FSTVX, FSGDX, FSITX).

Just completed reading abou the 3 fund portfolio. I like the approach, simple and straightforward.

As for the U.S. Bonds options, on your site I saw FBIDX and the one I chose is FSITX. The difference is that FBIDX has a better overall rating, the expense is still pretty small.

Any recommendations?