fixing my 401K?

[Frankies Girl]

I've been doing pretty decently in my 401K (through Fidelity). So far this year, I've gotten around 17% ROI. I knew nothing when I started it 10 years ago, and asked a friend to let me use his selections as a cheatsheet, and it's been only in the few years that I've gotten into doing a bit of research on what I'm invested in and why - and the fees involved. I've mostly been going off of the Morningstar ratings and looking at the fee structures and long-term performance up until now.

But I'm not holding my breath that the 17% is going to stay there, and I have read both MMM's and other money bloggers suggesting getting into the total market index funds (Vanguard's if you have it, with the Spartan discussed frequently over on the bogleheads site as being a close approximation)

I just noticed that we are offered the Spartan Total Market Index Fund - Advantage Class (FSTVX) in my company's selections for the 401K.
LOW expense fees and it's a total market index that is actually in my 401K - so I'm assuming that's good, right?
https://fundresearch.fidelity.com/mutual-funds/summary/315911800

Now that I understand what index funds are, I've rejiggered all future contributions to go there, and have put in to trade out the more fee-heavy of my funds - some were upwards of 1.13% (ouch) but everything that was over 1.0% expense is getting sold off and switched into FSTVX.

I'm still getting used to the idea that it really is best to just do the index and leave it alone for the most part.

So I'm still holding about 8 others in my 401K, either left over from the initial setup recommended by friend, or stuff I picked out over the last couple of years. SHOULD I just liquidate all of it and move it over the index fund, or is it okay to leave them alone? None of them have done poorly the last several years, and I'm kind of wanting to just check in once a quarter, see that they're still chugging away and then leave them alone...

For the record, the ones I'm looking at are: FMCSX, FDVLX, FDIVX (not liking the fees on that one at all), FPURX, FDGFX, FCNTX, and FDGRX.

If ya'll think I should just go ahead and sell them off and go total index fund, great, but I kind of feel bad since they've been doing so well and it seems weird to drop them (can you tell I'm a noob at this? Like it's going to hurt their FEELINGS or something? Good grief...)

I'm looking at at least 10-20 years before I need to to start thinking about dialing back the aggressive on the 401K, so I'm interested on seeing what the more financially savvy have to say on this. TIA!




 

[matchewed]

Sounds like you need a policy statement. What you're holding and why written down and defined.

I'm personally a fan of doing the vast majority of my investments in index funds. But I do have some funds and individual stocks from before my current perspective. I took the same route you're describing, liquidate the expensive funds and keep the <1% funds around. All funds going forward would go into an index fund or etf equivalent.

[Frankies Girl]

Thanks matchewed, it's nice to know I'm not being totally silly for hanging onto a little of the past performer stable.


I've completed the exchanges for the really high-cost funds and I think I'm pretty happy with the spread now.

That was the first time I've ever sold off/exchanged any of my funds in my 401K and it sort of unnerved me, but I'm happy I did it now. It did cost me about $4 to sell off about 5 different funds - I'll assume that is normal?

[matchewed]

Depends on the funds. Some have charges, some don't.

[GreenGuava]

If ya'll think I should just go ahead and sell them off and go total index fund, great, but I kind of feel bad since they've been doing so well and it seems weird to drop them (can you tell I'm a noob at this? Like it's going to hurt their FEELINGS or something? Good grief...)

It seems weird that "you should sell high" is the advice you need.  Would you rather they lose money before you sell?  Because, at least for the domestic stock portions, that's what they're going to do, at least relative to the total market index (I'm not making a claim about what the market itself will do - simply that expensive funds regularly under perform index funds, and those that do better one year tend to underdo it the next year)

I'm looking at at least 10-20 years before I need to to start thinking about dialing back the aggressive on the 401K, so I'm interested on seeing what the more financially savvy have to say on this. TIA!

I'd suggest using all of your tax advantaged investment accounts as one large portfolio (whether or not to include taxable accounts in this portfolio, too, depends on your estimated FI date, among other factors).  We know you have at least one good option in your 401(k).

For the best total help, I'd suggest letting us know the fund options available to you in your 401(k) - ticker symbol, name, expense ratio - as well as how much (approximately) is in the 401(k), as well as any other tax-advantaged investments:  do you have any IRAs?  Any old 401(k)s?  Let us know where those are and their balances (as well as the best choices in old 401(k)s if you aren't rolling them over).

[Another Reader]

To get a real feel for how well your funds are performing, look at the chart called the hypothetical growth of $10,000 over 10 years.  I have several Fidelity funds that beat the indexes by quite a bit.  Not sure if the Fido site allows you to graph funds you are comparing, but it can be eye-opening.  The index fanatics will pop an aneurism over this statement, but some fund managers do consistently beat the indexes over long periods of time.

[skyrefuge]

I'm still getting used to the idea that it really is best to just do the index and leave it alone for the most part.

If you need some more help getting used to that idea, your "pretty decent" 17% YTD return really isn't very good at all.  The Total Market Index (FSTVX) has returned 20.6% YTD.

Of course I'm not saying that you should chase past performance; I'm simply saying that you shouldn't have an emotional connection to any of the funds currently in your portfolio, since they have not actually shown any significant ability to outperform the market, even in the short term period from which you gleaned that once-favorable impression.

[Frankies Girl]

Good point about the 17% not being that great compared to the 20%+ that the index has been earning. I was just happy that nothing I chose lost money and was showing a decent return.

I did tend to look at the long-term (5 to 10 year average) when deciding what I chose in the past. I just hadn't considered the fees and that's one area I definitely screwed up in. I've sold off everything as of today that is higher than 1.0% on the expenses and funneled that into the Spartan index fund.

My 401K plan offers 40 different choices, so it's got lots to choose from (I think too much, but better too many choices than not enough), but with the Spartan index in there that looks like the best option for me. I'm going to start putting 100% of future allocations into that, and hang on to the 7 other funds mentioned in the original post (minus the international fund FDIVX - that is gone now as of today). All of them are strong performers with fees ranging from .63 to .90%. Still may take a harder look at the ones in the .80 to .90 range (but we're talking under $1,000 per fund on most of those) and trade out some into the Spartan as I formulate how I want my overall portfolio to look, but it's a better mix than I had originally, and I think I'm understanding things a whole lot more than when I started.

[aj_yooper]

I think you have too many funds for a small account.  You also seem anchored to your past fund choices; let them go.  Be strong and buy the Spartan index; Fidelity says it has a .1 ER, way below your other choices.  Set and forget.

[livetogive]

FTSVX is a great fund.

Your 17% return sounds great and congrats, but I caution you that you may be taking 2x the market risk to achieve a return only a few hundred bp above the market.  Don't get too hung up on absolute returns.  It's a common financial services industry trick to take outsized risks to get above average returns, then claim superior portfolio management skills.

[Frankies Girl]

I think you have too many funds for a small account.  You also seem anchored to your past fund choices; let them go.  Be strong and buy the Spartan index; Fidelity says it has a .1 ER, way below your other choices.  Set and forget.

You're probably right, but I am down to 4 smaller funds other than the Spartan index fund (was over 12 before... :D )

I'll probably divest several more of the little ones soon - just working around to it. I have other accounts (inherited IRAs, brokerage accounts) that are still being worked out, so my 401K is the only one I am really focusing on right now. I do want to make sure that when I get the rest set up, that I'm basically something like a 75% total index fund and 25% total bond fund (may throw in a REIT fund? Been reading jlcollins' site and I like his idea about the 4 simple investments) for all of my holdings.

This has definitely been an eye-opener for me! I really appreciate all of the help and insight. :)

[aj_yooper]

I like your idea of a focused overall investment plan with a written? asset allocation plan (75/25).  You probably know this, but ...: you don't need to replicate your asset allocation plan in every investment vehicle.  Each investment vehicle (401k, taxable, Roths, HSA, etc) holds different parts of your overall investment plan.  Tax sheltered accounts are good for holding the REITS, bond funds, small caps, mid caps as these investments generate income or the funds have more frequent stock turnover.  Total market index is great for taxable because it does not have turnover-it is the market.  This way, e.g., if your 401k has a great large cap index, such as a Fidelity Spartan, you use it, rather than other expensive fund types that you can put in a Roth or a taxable account.  It is all nicely covered in the Bogelheads site:
http://www.bogleheads.org/wiki/Bogleheads®_investing_start-up_kit

Good luck on your investment tuneups!