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Learning, Sharing, and Teaching => Investor Alley => Topic started by: letired on October 10, 2015, 10:18:22 PM

Title: Help me pick funds for my new 401k!
Post by: letired on October 10, 2015, 10:18:22 PM

Hey everyone,

I was hoping I could lean on your collective wisdom. I've just started a new job (yay!), with a pay raise (yay!), and a real 401k (yay!) with a 4% match (yay!) that I'm planning on maxing out in 2016 (yay! yay!).

The downside: I strongly suspect that most if not all of my fund options in the 401k are not the greatest. There is nary an index fund among them, and ... ugh. I'm really frustrated. I've already sent some feedback to HR about being interested in some broad index funds being added to the plan, but that's the long game. In the short term, I need to pick a/some fund(s) to invest my money in.

The 401k is with Fidelity. I do have their target date funds available, but in my experience at a previous job, and looking at their historical returns, the target date funds from Fidelity are all garbage, so I'm writing those off as options.

My next 'usual' strategy is to pick one from each of the 'categories' (large cap, mid cap, small, bonds, etc) that has the lowest fees and split my contribution among them as per my asset allocation plan.

Is there anything else I should be looking at? Other factors I should be considering?



Here are the funds I have available to me:

Name/Inception Date	Asset Class	Category	Gross Expense Ratio	Shareholder Fees
COL CONTRARN CORE Z (SMGIX) 12/14/1992	Stock Investments	Large Cap	0.87%	No additional fees apply.
COL DIVIDEND OPP Z (CDOZX) 08/01/1988	Stock Investments	Large Cap	0.75%	No additional fees apply.
JPM LG CAP GROWTH R6 (JLGMX) 02/28/1992	Stock Investments	Large Cap	0.61%	No additional fees apply.
FA MID CAP II I (FIIMX) 08/12/2004	Stock Investments	Mid-Cap	0.85%	No additional fees apply.
LD ABT VALUE OPPS I (LVOYX) 12/30/2005	Stock Investments	Mid-Cap	0.92%	No additional fees apply.
VICTORY S ESTB VAL I (VEVIX) 08/16/1983	Stock Investments	Mid-Cap	0.66%	No additional fees apply.
FA SM CAP VAL I (FCVIX) 11/03/2004	Stock Investments	Small Cap	1.19%	Short term trading fees of 1.5% for fee eligible shares held less than 90 days.
FA SMALL CAP I (FSCIX) 09/09/1998	Stock Investments	Small Cap	0.7%	No additional fees apply.
JANUS TRITON I (JSMGX) 02/25/2005	Stock Investments	Small Cap	0.79%	No additional fees apply.
FA INTL SM CAP I (FIXIX) 09/18/2002	Stock Investments	International	1.09%	Short term trading fees of 2% for fee eligible shares held less than 90 days.
FA WORLDWIDE I (FWIFX) 05/30/1990	Stock Investments	International	0.99%	Short term trading fees of 1% for fee eligible shares held less than 30 days.
OPP DEVELOPING MKT Y (ODVYX) 11/18/1996	Stock Investments	International	1.08%	No additional fees apply.
OPPHMR INTL GRTH Y (OIGYX) 03/25/1996	Stock Investments	International	0.89%	No additional fees apply.
FA REAL ESTATE INC I (FRIRX) 02/04/2003	Stock Investments	Specialty	0.77%	Short term trading fees of .75% for fee eligible shares held less than 90 days.
CALMOS MKT NEU/INC I (CMNIX) 09/04/1990	Stock Investments	Other	0.97%	No additional fees apply.
FKLN CNSV ALLOC ADV (FTCZX) 12/31/1996	Stock Investments	Other	1.02%	No additional fees apply.
FA BALANCED I (FAIOX) 01/06/1987	Blended Investments	N/A	0.66%	No additional fees apply.
FA FREEDOM 2005 A (FFAVX) 11/06/2003	Blended Investments	N/A	0.81%	No additional fees apply.
FA FREEDOM 2010 A (FACFX) 07/24/2003	Blended Investments	N/A	0.85%	No additional fees apply.
FA FREEDOM 2015 A (FFVAX) 11/06/2003	Blended Investments	N/A	0.89%	No additional fees apply.
FA FREEDOM 2020 A (FDAFX) 07/24/2003	Blended Investments	N/A	0.91%	No additional fees apply.
FA FREEDOM 2025 A (FATWX) 11/06/2003	Blended Investments	N/A	0.95%	No additional fees apply.
FA FREEDOM 2030 A (FAFEX) 07/24/2003	Blended Investments	N/A	0.99%	No additional fees apply.
FA FREEDOM 2035 A (FATHX) 11/06/2003	Blended Investments	N/A	1.01%	No additional fees apply.
FA FREEDOM 2040 A (FAFFX) 07/24/2003	Blended Investments	N/A	1.01%	No additional fees apply.
FA FREEDOM 2045 A (FFFZX) 06/01/2006	Blended Investments	N/A	1.01%	No additional fees apply.
FA FREEDOM 2050 A (FFFLX) 06/01/2006	Blended Investments	N/A	1.01%	No additional fees apply.
FA FREEDOM 2055 A (FHFAX) 06/01/2011	Blended Investments	N/A	1.01%	No additional fees apply.
FA FREEDOM 2060 A (FDKPX) 08/05/2014	Blended Investments	N/A	1.01%	No additional fees apply.
FA FREEDOM INC A (FAFAX) 07/24/2003	Blended Investments	N/A	0.75%	No additional fees apply.
FA GLOBAL BAL I (FGLIX) 02/01/1993	Blended Investments	N/A	1.02%	Short term trading fees of 1% for fee eligible shares held less than 30 days.
COL INCOME OPPS Z (CIOZX) 06/19/2003	Bond Investments	Income	0.88%	No additional fees apply.
FA EMERG MKT INC I (FMKIX) 03/10/1994	Bond Investments	Income	0.95%	Short term trading fees of 1% for fee eligible shares held less than 90 days.
FA GOV INCOME I (FVIIX) 04/04/1979	Bond Investments	Income	0.51%	No additional fees apply.
JANUS FLEXIBLE BD I (JFLEX) 07/07/1987	Bond Investments	Income	0.61%	No additional fees apply.
COL INCOME BUILDER Z (CBUZX) 02/16/2006	Bond Investments	N/A	0.81%	No additional fees apply.
FID RETIRE MMKT (FRTXX) 12/02/1988 7 day yield as of 09/30/2015   0.01%	Short-Term Investments	N/A	0.42%	No additional fees apply.

Title: Re: Help me pick funds for my new 401k!
Post by: milesdividendmd on October 10, 2015, 10:25:15 PM

 That is an outrageously shitty group of funds. My general approach when picking up mutual funds is to find the fund with the lowest expense ratio. But all of your funds are outrageously expensive. Whoever is picking out your fund options is certainly not acting as your fiduciary. 

Title: Re: Help me pick funds for my new 401k!
Post by: letired on October 10, 2015, 10:34:37 PM

Quote from: milesdividendmd on October 10, 2015, 10:25:15 PM

That is an outrageously shitty group of funds. My general approach when picking up mutual funds is to find the fund with the lowest expense ratio. But all of your funds are outrageously expensive. Whoever is picking out your fund options is certainly not acting as your fiduciary.

haha, that was my initial analysis of the situation as well! Silver lining: I know stuff!

Title: Re: Help me pick funds for my new 401k!
Post by: MDM on October 10, 2015, 11:26:20 PM

Given that you want to do something, perhaps the following would be reasonable.  The allocation percentages are simply nice round numbers.  If you want something more specific, see https://www.bogleheads.org/wiki/Approximating_total_stock_market.

Name/Inception Date	Asset Class	Category	Gross Expense Ratio	Allocation
JPM LG CAP GROWTH R6 (JLGMX)	Stock Investments	Large Cap	0.61%	60%
JANUS FLEXIBLE BD I (JFLEX)	Bond Investments	Income	0.61%	10%
VICTORY S ESTB VAL I (VEVIX)	Stock Investments	Mid-Cap	0.66%	10%
FA SMALL CAP I (FSCIX)	Stock Investments	Small Cap	0.70%	20%

See also  http://forum.mrmoneymustache.com/investor-alley/to-401k-or-not-to-401k-that-is-the-question-43459/ for related discussion.

Title: Re: Help me pick funds for my new 401k!
Post by: TomTX on October 11, 2015, 05:06:43 AM

Yeah, that is one shitty group of funds.

Firmly request the Fidelity Spartan funds be added.

Title: Re: Help me pick funds for my new 401k!
Post by: naners on October 11, 2015, 06:36:17 AM

Can you be more specific about your problems with the Fidelity target date funds? Are they actively managed? Historical returns may not be especially meaningful unless they are. What is their expense ratio?

Consider only investing in these shitty funds to get the match and doing the rest of your savings elsewhere (trad or Roth IRA). If you're in a high tax bracket that might not be a good solution though. Either way don't despair, when you leave this job you can roll the 401k over to Vanguard.

Title: Re: Help me pick funds for my new 401k!
Post by: Vilgan on October 11, 2015, 09:29:02 AM

Everyone likes to be outraged when stuff isn't as cheap as Vanguard and those aren't perfect, but those are (somewhat sadly) slightly better than average.

MDM's advice seems like good advice for now. That's the main thing you care about so feel free to ignore the rest of my post.

If still reading: its also important to realize what's going on and why those fees are so high: Your employer has to pay for recordkeeping services. They can either pay it themselves or pass those costs on. The vast majority of employers choose to pass those costs on to their employees. There are two methods of paying for recordkeeping fees: By deducting a fixed amount from each employee from their 401k each quarter (typically around $15/quarter) or increasing the ER on some or all of the funds in the portfolio. Your company has clearly chosen to add an overhead to some of the funds to pay for these recordkeeping fees. For example, Fidelity Freedom 2040 should have an ER of 0.75% but you are paying roughly 1% in the fund. Average increase for a small/mid sized plan is something like 18-25 basis points so these costs are reasonable. It looks like they've put most of the increase into the lifecycle funds which would let the automatic types pay most of the fees and those who are more active/picky to avoid them which is also not uncommon.

That being said, your company (like most) clearly does not have Spartan funds on their radar. Most don't. Go type fidelity small cap into google and the spartan small cap fund will probably not be the first result.

So in the short term, I'd recommend following MDM's advice about some funds to use and being okay with the fact that while not perfect.. you are not getting uber screwed and have slightly better than average offerings available. Then I would also recommend identifying who is on your 401k Committee and reaching out and asking them to replace most of the fidelity offerings with their spartan equivalent. The lifecycle funds are especially egregious (should drop fees by like 60 basis points).

Title: Re: Help me pick funds for my new 401k!
Post by: letired on October 11, 2015, 01:20:58 PM

Quote from: naners on October 11, 2015, 06:36:17 AM

Can you be more specific about your problems with the Fidelity target date funds? Are they actively managed? Historical returns may not be especially meaningful unless they are. What is their expense ratio?

Consider only investing in these shitty funds to get the match and doing the rest of your savings elsewhere (trad or Roth IRA). If you're in a high tax bracket that might not be a good solution though. Either way don't despair, when you leave this job you can roll the 401k over to Vanguard.

Back in 2005, I used the Fidelity target date funds in the retirement account at my then-job. It consistently underperformed every. single. other. investment I had, including some other less-than-optimal mutual funds. And it continued to underperform after I left that job, though me rolling it over to an IRA, through the 2008 crash, and until the day I sold it sometime last year and put the money into the Spartan whole-market fund. There might be something I'm missing about how these funds are set up to function, but I have never been impressed with their performance. I also had money in their 'Freedom Income' fund, which I understand to be the thing you do after you've reached your retirement date, and even THAT outperformed it.

I'll be maxing out the 401k, because I am (finally!) making enough money that the tax situation will be redonk if I don't. I will also be maxing a tIRA, and hopefully doing some extra post-tax investing as well.

Title: Re: Help me pick funds for my new 401k!
Post by: letired on October 11, 2015, 01:35:18 PM

Quote from: MDM on October 10, 2015, 11:26:20 PM

Given that you want to do something, perhaps the following would be reasonable.  The allocation percentages are simply nice round numbers.  If you want something more specific, see https://www.bogleheads.org/wiki/Approximating_total_stock_market.

Name/Inception Date	Asset Class	Category	Gross Expense Ratio	Allocation
JPM LG CAP GROWTH R6 (JLGMX)	Stock Investments	Large Cap	0.61%	60%
JANUS FLEXIBLE BD I (JFLEX)	Bond Investments	Income	0.61%	10%
VICTORY S ESTB VAL I (VEVIX)	Stock Investments	Mid-Cap	0.66%	10%
FA SMALL CAP I (FSCIX)	Stock Investments	Small Cap	0.70%	20%

See also  http://forum.mrmoneymustache.com/investor-alley/to-401k-or-not-to-401k-that-is-the-question-43459/ for related discussion.

Thanks for the input! That's almost exactly the set of funds I picked, with some wiggle room on the allocation front.

Would you mind going into why you picked the JANUS FLEXIBLE BD over the other options? I'm curious about your reasoning. I had FA GOV INCOME pegged as a good option.

Title: Re: Help me pick funds for my new 401k!
Post by: MDM on October 11, 2015, 01:42:46 PM

Quote from: letired on October 11, 2015, 01:35:18 PM

Would you mind going into why you picked the JANUS FLEXIBLE BD over the other options? I'm curious about your reasoning. I had FA GOV INCOME pegged as a good option.

JFLEX has slightly better performance over the past 3 years vs. FVIIX (see Morningstar "performance of $10K invested" chart).  Not very scientific, but there it is....

Title: Re: Help me pick funds for my new 401k!
Post by: letired on October 11, 2015, 01:46:02 PM

Quote from: Vilgan on October 11, 2015, 09:29:02 AM

Everyone likes to be outraged when stuff isn't as cheap as Vanguard and those aren't perfect, but those are (somewhat sadly) slightly better than average.

MDM's advice seems like good advice for now. That's the main thing you care about so feel free to ignore the rest of my post.

If still reading: its also important to realize what's going on and why those fees are so high: Your employer has to pay for recordkeeping services. They can either pay it themselves or pass those costs on. The vast majority of employers choose to pass those costs on to their employees. There are two methods of paying for recordkeeping fees: By deducting a fixed amount from each employee from their 401k each quarter (typically around $15/quarter) or increasing the ER on some or all of the funds in the portfolio. Your company has clearly chosen to add an overhead to some of the funds to pay for these recordkeeping fees. For example, Fidelity Freedom 2040 should have an ER of 0.75% but you are paying roughly 1% in the fund. Average increase for a small/mid sized plan is something like 18-25 basis points so these costs are reasonable. It looks like they've put most of the increase into the lifecycle funds which would let the automatic types pay most of the fees and those who are more active/picky to avoid them which is also not uncommon.

That being said, your company (like most) clearly does not have Spartan funds on their radar. Most don't. Go type fidelity small cap into google and the spartan small cap fund will probably not be the first result.

So in the short term, I'd recommend following MDM's advice about some funds to use and being okay with the fact that while not perfect.. you are not getting uber screwed and have slightly better than average offerings available. Then I would also recommend identifying who is on your 401k Committee and reaching out and asking them to replace most of the fidelity offerings with their spartan equivalent. The lifecycle funds are especially egregious (should drop fees by like 60 basis points).

Thanks for the explanations! I like having a better idea of how all these crazy things come to happen.

The options aren't terrible, but I think part of my disappointment comes from my last job (tiny tech startup) having it's retirement with a discount brokerage where I could just buy whatever I wanted (and the accompanying transaction fees), and the job before that (large state org) having a much better fund selection with better expenses, which makes sense given how large an institution is. My current place is still a relatively small company (though bigger than my last), so it makes sense they don't have quite as much leverage to get better fees.

The long term plan is to petition/request/advocate for the Spartan funds to be available at Current Job, but I have no idea how long that process will take, so my perception is that I might as well get SOME return on my dollars, and when that comes to fruition, I can move stuff over.

Title: Re: Help me pick funds for my new 401k!
Post by: letired on October 11, 2015, 01:46:59 PM

Quote from: MDM on October 11, 2015, 01:42:46 PM

Quote from: letired on October 11, 2015, 01:35:18 PM

Would you mind going into why you picked the JANUS FLEXIBLE BD over the other options? I'm curious about your reasoning. I had FA GOV INCOME pegged as a good option.

JFLEX has slightly better performance over the past 3 years vs. FVIIX (see Morningstar "performance of $10K invested" chart).  Not very scientific, but there it is....

Thanks! I guessed something like that, but I don't like to assume too much!