Help me pick funds in my 401(K)

[Jack]

Until now, my job's 401(K) plan has been terrible (every fund choice except money market had ~2% fees and there was no company match), so it wasn't even worth it for me to participate. Now, though, the company is switching plan administrator to Fidelity and instituting a "50% of contributions up to 6% of salary" match, so I obviously will participate. Now I just need to choose my fund allocation.

My asset allocation is 100% stocks (I have a mortgage and student loans, so if I wanted to put money in bonds I'd just pay off my loans instead). My IRAs (traditional and Roth) hold VTSAX, my taxable account holds VXUS and VWO, and I'd ideally like to get a similar allocation in my 401(K).

The fund choices available in the new 401(K) are as follows:

• American Beacon Bridgeway Large Cap Value Fund Institutional Class
• AllianceBernstein High Income Fund Advisor Class
• Artisan International Fund Investor Class
• Calamos Evolving World Growth Fund Class I
• Calamos Market Neutral Income Fund Institutional Class
• ClearBridge Aggressive Growth Fund Class I
• Fidelity Advisor® Freedom Income Fund® - Institutional Class
• Fidelity Advisor® Freedom 2055 Fund® - Institutional Class (and the rest of the target date funds)
• Fidelity Advisor® Real Estate Fund - Class I
• Fidelity® Money Market Trust Retirement Money Market Portfolio
• Invesco Equally-Weighted S&P 500 Fund Class Y
• Ivy Asset Strategy Fund Class I
• Metropolitan West Low Duration Bond Fund Class Institutional
• MFS® International New Discovery Fund Class R4
• Spartan® Extended Market Index Fund - Fidelity Advantage Class
• Spartan® Small Cap Index Fund - Fidelity Advantage Class
• Templeton Global Total Return Fund Advisor Class

The funds that seem closest to useful are the Spartan ones: the Extended Market fund has an ER of 0.07% and the Small Cap has an ER of 0.33% (gross)/0.19%(net) (Which ER should I care about, gross or net?). That Invesco S&P 500 fund looks interesting too, but I'm a little weirded out that it's equally-weighted instead of cap-weighted and I'm not sure about ER/fees/loads...

Choices I'm considering at the moment are:

• Allocate 100% of my contribution to Spartan Extended Market
• Pick some mix of Spartan Extended Market, Spartan Small Cap, Invesco S&P 500, and maybe Fidelity Advisor Real Estate Fund
• Pick some of the higher cost / actively-managed funds along with Spartan Extended Market (I don't like this choice)
• Ask the folks in charge of the plan if it's not too late to add a Spartan S&P 500 Index or Spartan Total Market Index fund to the list of choices (or find out if the plan allows in-service rollovers, and at what cost)

What do you folks think I should do?

[Louisville]

You know that you want to be 100% invested in stocks. That's a reasonable allocation for many people. But, have you given any prior thought to your allocation within stocks? Rather than picking funds to make an allocation, make an allocation first then try to pick funds to fit it (as closely as possible given the choices).
I am in 86% stocks now. Within that amount, my allocation is this:
US Large Cap Blend - 18.95%
US Large Cap Value - 18.95%
US Small Cap Blend - 9.47%
US Small Cap Value - 9.47%
Foreign Large Cap Blend - 11.58%
Foreign Large Cap Value - 11.58%
Foreign Small Cap Blend - 9.47%
Emerging Markets - 5.27%
REIT - 5.27%

I came up with this after reading (among other things) William Bernstein's The Intelligent Asset Allocator. Ah, the Efficient Frontier.
Now, given that my dough is spread out across Roth IRAs, Rollover IRAs, 401k, and taxable investments, all with different funds available, it's sometimes difficult to hit my target breakdown, but I come pretty close.
Of course, costs play a big role as well.
I guess I'm saying make a list before you go to the store rather than just going shopping and grabbing stuff because it's shiny or cheap.

[Another Reader]

Sadly, you do have to shop for quality in these company plans.  First you need to determine your overall asset allocation.  Once you do that, look at what you already own in other accounts.  Once you understand your allocation in your existing accounts, it's time to look at what's in this plan.  The Fidelity Spartan indices are good, inexpensive choices for small and mid cap stocks.  Look at the report on each of the other funds.  What are the expenses?  More important, what does the "hypothetical growth of $10,000" chart show you?  Figure out which of the funds have consistently performed over time and decide if and how they fit into your allocation.  For example, if you can't find a good international or emerging market fund, add more of that to your other accounts and focus on the quality funds in the 401k. 

I'm not a huge fan of target date funds, but for some folks they fit a need.  If you are interested in one or more of those, look at the underlying funds included in the target fund.  Are these funds you would choose?  Do they help you achieve your desired asset allocation?  Consider their expenses plus the target fund expense ratio as well.

This is an opportunity to gain some experience and confidence in evaluating investments and to learn more about your asset allocation comfort zone.  Dig in!

[GregO]

Yeah, you are going to be over-weighted in small companies with any of those index choices.  And the indexes even trail the market.  Obviously the last option you list is the best, but seems unlikely. 

If that fails, then I'd go all Spartan Extended Market.  You can do more research, but I've always read that VTSAX is weighted about 75% large/ 25% small companies.  So if I had your choices, I'd go 100% Spartan Extended and then move some funds from VTSAX to a Vanguard S&P 500 index (VOO is my ETF-choice).  If you have three times as much money in the S&P 500 index than the Spartan Extended, then you are roughly at the same allocation as the VTSAX.  As long as you have enough money in your Vanguard retirement accounts, that should work pretty well and keep your allocations about right.

[hodedofome]

The invesco 500 fund isn't a horrible option. Equal weight has historically beaten cap weight by 1-2 percent over time. Expenses are .32 percent so assuming that the future is like the past, that should be enough to match or beat the cap weighted index over the long haul. Most equal weighted funds are too expensive to outperform the index but this one is fairly reasonable.

[Jack]

Ok, so I've chosen my contribution amounts as:

Invesco Equally-Weighted S&P 500 Fund Class Y	VADDX	20%
Spartan® Extended Market Index Fund - Fidelity Advantage Class	FSEVX	40%
Spartan® Small Cap Index Fund - Fidelity Advantage Class	FSSVX	40%

Combined with the VTSAX in my IRA (which gives an overall portfolio allocation of ~40% large-cap, ~30% mid-cap, ~30% small cap), I feel like this gives a decent approximation of total market, albeit closer to equal-weighted instead of cap-weighted. I understand that a tilt towards small is a higher-risk/higher-possible-return plan (which is good -- I'm young and want to be quite aggressive). The question is does this allocation provide enough higher-possible-return to make the extra risk worth it?