Which 401K Investment to choose

[WhoDey]

Alright, so I am in the accumulation phase - so I am going 100% stocks S&P500.  But, there are two options in my 401K.  The options are below:

Actively Managed:
Exp Ratio .2% ($2.00 per $1000)
Provides Dividends
Last 3 years:
12/29/15   $0.91671   
12/22/14   $0.91857   
12/26/13   $0.89423

Passively Managed:
Exp Ratio .01% ($.10 per $1000)

It seems to me that even though there is a higher Exp Ratio with the actively managed fund - the dividend more than covers and provides ~753.58 right now.  I have 913.682 shares currently, but this increases each paycheck.

[Bikesy]

Others will chime in, but go with the lower ER fund.  When a fund issues a dividend, it's value drops in proportion to the amount of that dividend.  If these funds both track the S&P you should come out ahead by using the passively managed one.

[Heckler]

What does the long term comparison to the benchmarch performance show for the active fund?

1 & 3 year performance don't count btw if you plan to buy and hold.

http://www.investopedia.com/articles/basics/06/benchmark.asp

[Jeremy E.]

The S&P 500 is an index, S&P 500 funds passively track the index and follow it. There is no reason for an S&P 500 fund to be actively managed. Also, I don't believe you that the expense ratio on the passively managed one is .01%(as even the Vanguard S&P 500 fund that requires you to have a minimum of 5 million has an expense ratio 4 times as large), but if it truly is then you are very lucky and you should go all in on it. Also the passively managed fund will also produce dividends, S&P 500 funds generally give around 2% in dividends per year.

[Spitfire]

I don't have great options in my 401k so I just went with the S&P 500 index due to the low ER. I agree with the rest, go with cheaper passive one, it adds up over time.

[Jeremy E.]

I don't have great options in my 401k so I just went with the S&P 500 index due to the low ER. I agree with the rest, go with cheaper passive one, it adds up over time.

What you said is contradicting, you say you have an S&P 500 index in your 401k (a great option), and you also say you don't have great options.

[Spitfire]

Fair enough, I was thinking of all the options vanguard has when I wrote that. I agree, S&P 500 index is excellent.

[Trip]

I'm going to echo what others have already said here, but there is zero reason for a S&P fund to be actively managed. Also, you will likely get around a 2% dividend from the index fund anyways since that's about where the current S&P Dividend Yield is

[WhoDey]

My understanding is that my company has hired portfolio managers to manage some of these retirement accounts - they are what I call "Actively" managed.

Also, digging into the "passive" S&P500 I see no mention of dividends, does that mean there are none?  Also confirmed (attached as well) that the passive is .01% fee.

[dandarc]

So the passive option returned more than the active on every time-frame you've quoted, and is at a lower fee?  You must be working for a very large organization to have .01% expense ratio.  Or there are fees somewhere else in the plan to compensate.

[WhoDey]

I do work for a large international organization.  What about the dividends though?  With them lowering the nav of the actively managed make it seem like it is really doing worse when I actually received cash?

[mrpercentage]

Prospectus? You have really low fees, excellent really. Beats my State hands down. S&P500 for State is VINIX at 0.04% expense ratio. I do wonder what they mean by active. Maybe large cap blend?

[MustacheAndaHalf]

The S&P 500 index has a 2.3% dividend according to Vanguard's data.  Both of your choices have a dividend.

I don't understand the goal of the actively managed S&P 500 fund.  From your description it sounds like dividends are the goal, but that doesn't require much active management.  Maybe that explains the low expense ratio.

I'd favor the passive fund, but if you want the active fund I would make sure of two things:
1. Turnover imposes hidden costs not listed in the prospectus.  I suspect this "active" fund has under 50% turnover, which to me is closer to a passive fund.  Under 50% turnover means they hold stocks more than 2 years, on average.
2. What is the goal of the fund?  The prospectus will clear this up better, but there should be a paragraph somewhere describing the fund's goal.  That also tells you what kind of stocks the actively managed S&P 500 will avoid.   If you can find it, take a look at the stock holdings of the active fund, versus the passive fund.

[WhoDey]

I have to have the prospectus mailed to me between the two funds.

The "active" fund has a turnover rate of 37%

Here is some additional information:

Fund Overview

Objective
The investment seeks long-term growth of capital and income.

Strategy
The fund invests primarily in equity securities of U.S. companies, such as common and preferred stocks. The portfolio managers combine various investment management styles, which may include core, growth and value, designed to produce a broadly diversified portfolio. As a result, it has characteristics similar to the Standard & Poors 500® Composite Stock Index, including average market capitalization and dividend yield potential. The fund also may invest to a lesser extent in foreign (non-U.S.) securities and debt securities.

Risk
Value and growth stocks can perform differently from other types of stocks. Growth stocks can be more volatile. Value stocks can continue to be undervalued by the market for long periods of time. Stock markets are volatile and can decline significantly in response to adverse issuer, political, regulatory, market, economic or other developments. These risks may be magnified in foreign markets. Additional risk information for this product may be found in the prospectus or other product materials, if available.

Short Term Redemption Fee
None

Who May Want To Invest
Someone who is seeking the potential for long-term share-price appreciation and, secondarily, dividend income.
Someone who is seeking both growth- and value-style investments and who is willing to accept the volatility associated with investing in the stock market.

Additional Disclosures
This description is only intended to provide a brief overview of the mutual fund. Read the fund's prospectus for more detailed information about the fund.
The S&P 500® Index is a registered service mark of The McGraw-Hill Companies, Inc., and has been licensed for use by Fidelity Distributors Corporation and its affiliates. It is an unmanaged index of the common stock prices of 500 widely held U.S. stocks that includes the reinvestment of dividends.

[Jack]

I don't have great options in my 401k so I just went with the S&P 500 index due to the low ER. I agree with the rest, go with cheaper passive one, it adds up over time.

What you said is contradicting, you say you have an S&P 500 index in your 401k (a great option), and you also say you don't have great options.

It is possible to have a crappy S&P 500 index fund. For example, the one in my 401k has a gigantic 0.65% expense ratio! (Deutsche S&P 500 Index Fund Class A (SXPAX), if you're curious.)

[dandarc]

They are using "S&P 500" instead of "Large Cap" in describing the active fund.  A key difference:

The fund also may invest to a lesser extent in foreign (non-U.S.) securities and debt securities.

Definitely not an S&P 500 fund the way we would use that term here.

Usually performance quotes on mutual funds like you've listed include dividends - so if that is the case here, then you've got your total return in front of you.

[Jeremy E.]

They are using "S&P 500" instead of "Large Cap" in describing the active fund.  A key difference:

The fund also may invest to a lesser extent in foreign (non-U.S.) securities and debt securities.

Definitely not an S&P 500 fund the way we would use that term here.

Usually performance quotes on mutual funds like you've listed include dividends - so if that is the case here, then you've got your total return in front of you.

the S&P 500 fund I have in my 401k, VINIX, has 0.6% in non-U.S. stock, not sure if that is the same thing as investing in a lesser extent though, a lesser extent might be 5% or something I'm not sure.

[Jeremy E.]

I don't have great options in my 401k so I just went with the S&P 500 index due to the low ER. I agree with the rest, go with cheaper passive one, it adds up over time.

What you said is contradicting, you say you have an S&P 500 index in your 401k (a great option), and you also say you don't have great options.

It is possible to have a crappy S&P 500 index fund. For example, the one in my 401k has a gigantic 0.65% expense ratio! (Deutsche S&P 500 Index Fund Class A (SXPAX), if you're curious.)

I suppose that one isn't great, but I'd say it's still decent. I'd say it's a crappy S&P 500 fund and a decent 401k fund, making me wrong either way though I suppose. I've heard of some 401ks with no index funds though, so it could be worse.

[Mighty-Dollar]

PASSIVELY managed. Study after study, year after year it has been shown that index funds beat the managers after fees. Cherry pick the past best performing actively managed funds and this will still give you no advantage.

[WhoDey]

Thanks all for the input.  I moved all 401k holdings into the passively managed fund.

Now just set it and forget it!  Here's to a great next 30 years!

[VaCPA]

I don't have great options in my 401k so I just went with the S&P 500 index due to the low ER. I agree with the rest, go with cheaper passive one, it adds up over time.

What you said is contradicting, you say you have an S&P 500 index in your 401k (a great option), and you also say you don't have great options.

It is possible to have a crappy S&P 500 index fund. For example, the one in my 401k has a gigantic 0.65% expense ratio! (Deutsche S&P 500 Index Fund Class A (SXPAX), if you're curious.)

The ERs for the index funds in my 401k are .3%. Not horrible, but probably a lot higher than an index fund expense ratio should be.