Any financial advisors here?

[DT4K]

OK, I know it is supposed to be risky to throw all your money into one place.
But is there really any good reason not to put all my 401k money into one mutual fund that has a 5 year average return of 22% and is 5 star rated by morningstar?

Right now, I've got 30% of my 401k money going into this fund. The rest of my money is divided up between 5 other funds. I can't help but think I should move everything into this one fund since it is the highest performing and has been pretty consistently good.

 

[kranky]

Do not pick a fund by looking at their recent history and especially do not put all your money into one fund. Which fund are you talking about?

I suggest doing some research on "asset allocation" which will explain why you want to divide your investment funds differently based on your risk tolerance and how long you have until retirement. Asset allocation means selecting a mix of stock funds (growth, international, etc.), bond funds and other investments which will actually reduce your risk while maintaining good performance.

 

[ggavinmoss]

Which fund/fund family is it?

-geoff

 

[DT4K]

Hotchkis and Wiley Midcap
It just became available through our 401k earlier this year.

I'm a noob when it comes to this stuff, but I understand the idea of not having all your money in one place.

But when it comes to a mutual fund, aren't you really already diversified simply because the fund consists of hundreds of different stocks, etc. The impressive part to me was that this fund had good returns even when the market was in a downturn. I'm not arguing that it is really a good idea to put all my 401k money in it, I don't know enough to make that kind of argument. I'm just asking for some explanation of why that wouldn't be a good idea.

 

[AmigaMan]

I fell into that trap of thinking since it's a mutual fund I'll be protected since it's diversified. Wrong! Lost several thousand dollars during the tech bust from 2000 to 2001. I was and am a noob too, but now I have my money (in my new 401k) diversified into several fund categories. But you also don't want to take it too far. If you diversify too much, you'll miss out on gains from your stronger funds. It's a tricky balance, but you can and should do well. If you're young and can tolerate it, I'd put around 50% to 60% in aggressive growth and value funds. This includes a combination of large, mid, and small cap funds. Then put some (30% or so) into an index fund like one that tracks the S&P. They do well typically because the fees are low and you get a consistant rate of return. Then I'd split the rest into international funds.

Of course I am a computer programmer, what the hell do I know about stocks and investing...

 

[kranky]

Like many funds, that one had fantastic results early, but as time went on their performance approaches the average. Over the last 5 years, it has significantly outperformed most other funds in its category (mid-sized value funds). Over the last year, it's outperformed a lot less.

That probably means that their early success attracted a horde of investors, and now the fund is much larger which makes it tougher for the managers to keep up the early performance. They have to keep investing the money that comes in, even if there aren't enough stocks out there that meet their criteria.

That's not to say the fund won't be successful in the future, only that yesterday's hot fund may be tomorrow's mediocre one. Two of their top 10 stock holdings have gone down over 20% just this year, so they aren't immune to bad picks (and most funds have some losers also).

Yes, you are diversified somewhat because the fund owns many different stocks, but they have 30% of their money invested in financial stocks. That one sector will have a big impact on their overall performance. Each fund has a "style" - this one is a mid-sized value fund. If that type of stock does well, the fund will do well. If that type of stock sinks, the fund will suffer. You need to consider funds with different styles to balance out the risk.

 

[DaveSimmons]

Does your 401k include an S&P 500 index mutual fund? That is a good place to put half of your contributions because it is very diversified (500 stocks) and is "passively" managed without the risks of a fund manager trying to time the market and bet on individual stocks.

Over time, most actively managed funds do worse than the S&P 500. But at any time, with 1,000+ funds placing bets on different sectors of the market, there will always be some funds where the gambling pays off for them for a while.

 

[DT4K]

Originally posted by: AmigaMan
Of course I am a computer programmer, what the hell do I know about stocks and investing...

Well I'm a programmer too, so I know what you mean.

Originally posted by: DaveSimmons
Does your 401k include an S&P 500 index mutual fund? That is a good place to put half of your contributions because it is very diversified (500 stocks) and is "passively" managed without the risks of a fund manager trying to time the market and bet on individual stocks.

Over time, most actively managed funds do worse than the S&P 500. But at any time, with 1,000+ funds placing bets on different sectors of the market, there will always be some funds where the gambling pays off for them for a while.

Yes, and I'm currently putting 20% of my contributions into that fund. 30% is going into the Hotchkis fund, and the rest is divided between several other funds. Since I'm a newb at this, when I was first making my elections a couple years ago, I mainly picked based on those with the best 5 or 10 year performance. The exception to this is that I put a sizeable portion into the T.Rowe Price science and technology fund. In the 2 years prior to beginning my 401k, the science and tech fund had taken a huge hit. It lost like half it's value in 2 years from 2000 to 2002. I figured it had hit bottom and that seems to have been a good move since it had like 30% gains in the 2 years I was investing in it.

Thanks for the good info everyone.

 

[olds]

Are there any financial planners that don't sell investments?
I need to talk to one but I am not looking to buy anything from them except their services.

 

[rahvin]

I put 50% of my contributions into the vanguard 500 fund and the other 50% into the vanguard primecap. Due to recent global flucuations I'm probably going to trim each by 10% and put that 20% into an international fund. Long term growth internationally over the next decade I believe will finally top US growth for the first time.

 

[DaveSimmons]

Originally posted by: rahvin
I put 50% of my contributions into the vanguard 500 fund and the other 50% into the vanguard primecap. Due to recent global flucuations I'm probably going to trim each by 10% and put that 20% into an international fund. Long term growth internationally over the next decade I believe will finally top US growth for the first time.

Good advice. I just moved a good chunk of my IRA rollover at Schwab into Vanguard's VEURX European index fund. I was going to go with their VEIEX emerging markets fund but Schwab stopped carrying it for some reason.

For retirement savings where you might hold funds for decades it makes sense to have some % in a worldwide fund instead of 100% in US funds.

 

[AmigaMan]

Anyone look at INGDirect's funds yet? I may be in the market for a Roth IRA to rollover my existing 401K into. I'll probably look into their agressive portfolio or maybe just take a couple of their funds out of that portfolio myself. This will not be my primary retirement portfolio, just something to supplament my existing 401k or if I'm unemployed something to still contribute to.

link

 

[DaveSimmons]

Why not rollover your IRA to vanguard.com instead? You can get their VFINX S&P500 fund without the transaction fee you'd pay buying it elsewhere, and they have many other good funds to pick from.

Also, for a 401k rollover you probably want a traditional IRA not Roth so you don't get hit with the big tax bill in converting from tax-deferred to tax-free.

You can start a separate Roth IRA account at any time, even while contributing to a 401k, as long as your income is below 100K. (Actually around 110K? too lazy to look it up.)

 

[frankie38]

If you put all your money into mid cap fund then your entire 401k is dependant on the performace of these companies. I believe that it is important to do your own thinking here. Think about what stocks/copanies will do well in 2005 and beyond. You should actively manage your 401k to make sure your investments are performing.

YOu should invest in other funds simply because other stocks may do better than midcaps next year.
Such as international funds that will do well beacuse of declining dollar. Large growth companies that may benefit from 1st year of a presidential term.

Have some fun and do a little reading and research.

 

[z0mb13]

things to look for when you want to invest in a particular mutual fund
- the style of the fund, that is if it is value driven or growth driven. ALso if it is large cap, middle cap, or low cap.
- the composition of the fund, how many percent is in technology sector, how many in medical, etc
- the turnover rate of the fund. Low turnover rate is generally better since you wont be nailed with taxes
- the FEES that you have to pay. this is HUGE! check morningstar and they have a good background of the fees (upfront, backend, 12b-1 fees). A lot of funds have fees up to 2 percent YEARLY. so if the fund is stable for they year you are actually DOWN 2% since u will have to pay fees.

Another note about 12b-1: this is a commission given to your broker to KEEP you in the fund. Can be as high as 1% (highest allowed by law). So keep this in mind when you are asking your broker for advice, or if the broker is giving you advice. they MAKE this commission ONLY IF THEY RETAIN YOU IN THE FUND!! so this is their main objective!!