The Money Mustache Community
Learning, Sharing, and Teaching => Investor Alley => Topic started by: Blonde Lawyer on April 20, 2016, 08:58:36 AM
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Hi! I posted a question buried in another thread and figured I should start a new topic for it. My 401k is with ABA Retirement Funds. I currently have half of my 401k in 2040 target retirement date and half in 2050. Reviewing fund performance, however, I'm now really interested in the Large Cap Index Equity Fund. It has outperformed all other funds every year since its inception in 2009 and has never had a year in the negative. Overall performance is 17% compared to the 6% I'm currently getting. Can someone explain what this type of fund is to me? How risky is it? How balanced is it? I'm debating whether to put a third in there or half or the whole thing . . .
It is defined on the website as "Seeks to replicate, before taking into account Fund expenses, the total rate of return of the S&P 500 by investing generally in securities included in that Index."
I'm new to investing and need a bit more info. Thanks.
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The large cap fund (i.e. the S&P 500) has outperformed other funds because the market has been good during that time frame. Your balanced funds (target retirement funds) have bonds in them. I guarantee they performed better during the 2008 crash than the large cap fund. If there's another downturn, the balanced funds will perform better (i.e. lose less value).
It sounds like you should just stick with the target retirement funds until you learn more about investing. Create an Investor Policy Statement
https://www.bogleheads.org/wiki/Investment_policy_statement
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It does not seem all that bad
Expenses for the Large Cap Equity Fund 0.88% (http://www.abaretirement.com/images/pdf/fliers/ABA_Fees_Flyer.pdf). Definitely not as good as Vanguard (e.g. 0.1% ). As an index fund (as you say, it replicates S&P500) this is rather high expenses.
Not sure if there is a front end or back end load. Please verify for that.
The performance is available on the web (http://abaretirement.com/images/pdf/MonthlyReports/7-31-15FundPerformance.pdf).
If it is a S&P500 fund, it should pretty much match the index. Do not compare it with other funds, compare it with the index.
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In our 401ks and other restricted-investment-option accounts, I try to pick whatever has the lowest ER and adjust my Schwab holdings to maintain the desired asset allocation. Usually this is a US broad market fund which makes it easy (and makes Schwab think I have a really strange allocation).
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Reviewing fund performance, however, I'm now really interested in the Large Cap Index Equity Fund. It has outperformed all other funds every year since its inception in 2009 and has never had a year in the negative. Overall performance is 17% compared to the 6% I'm currently getting. Can someone explain what this type of fund is to me? How risky is it? How balanced is it? I'm debating whether to put a third in there or half or the whole thing . . .
This fund invests 100% in the 500 stocks in the S&P 500 index (the largest 500 US companies, essentially). It moves with the market, and is thus fairly risky, but is also likely to lead to a higher level of long-term growth than a bond fund or a blended fund.
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I think you need to start by deciding on your overall desired asset allocation. Your target funds most likely have a mix of US stocks, international stocks and bonds. The Large Cap Index Fund is limited to S&P 500 stocks. Do you have any other accounts in addition to the 401k? What is your desired overall asset allocation? Do you want 100% stocks, a certain ratio of stocks and bonds? some international exposure?
Once you decide on your overall allocation, then you need to look at the totality of your accounts and figure out what options you have for achieving that allocation and what the expense ratio is for each option. Then you decide on the most optimal way of achieving that allocation (cost, ease of maintaining the desired ratio, ease of rebalancing, tax efficiency, etc.)
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See https://www.bogleheads.org/wiki/Callan_periodic_table_of_investment_returns.
Past performance does not guarantee future performance.
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Thanks everyone!!