My 401k investment elections

[smr91481]

I'm looking for some input on whether I'm choosing the best funds within my 401k. 25% of my contributions go in each of these 4 funds... COLUMBIA ACORN FUND, Z - BLACKROCK EXT EQUITY MKT K - JP MORGAN SM CAP EQUITY SELECT - AE EUROPACIFIC GROWTH R5.

Here is some info on the fund's past returns
COLUMBIA... - Since inception (1970) 14.82% - 1 yr 4.26% - 3 yr 28.77% - 5 yr 4.18% - 10 yr 9.28%.
BLACKROCK... - Since inception (1994) 9.24% - 1 yr 2.22% - 3 yr 28.85% - 5 yr 3.66% - 10 yr 7.91%.
JP MORGAN... - Since inception (1996) 10.35% - 1 yr 8.02% - 3 yr 26.9% - 5 yr 6.79% - 10 yr 10.61%
AE EUROPA... - Since inception (2002) 7.91% - 1 yr -5.98% - 3 yr 17.4% - 5 yr 0.57% - 10 yr (hasn't quite made 10 yrs, but near the 7.91% since inception)

I chose these funds because they had the best track record or the past 10 years. There were some funds with bigger returns, but they were all very new funds.

My other option would be to do one of the target date funds... Mine would be the 2045 fund.
Since inception (2005) 4.91% - 1 yr -1.06% - 3 yr 14.41% - 5 yr 0.31% - 10 yr (none... fund is only 7 yrs old).

Any advice on these investments? Should I be doing anything different?

 

[prototype]

Welcome SMR91481, I am fairly new here also. I really can't offer any advice on these particular funds especially since it appears your planned ER date is so far out. They look like decent performers, and I know 401Ks have a limited selection (unless they allow you to use a brokerage service which I believe has additional expenses attached, at least it did on my 401K, I never used these services and retired last year). My megacorp's 401K had various target date funds (Blackrock managed I believe) but they did not seem to perform well vs. the majority of other funds available. I also used to talk with coworkers around my age about which available funds they thought were the best. Anyway hopefully some people with more expertise provide some useful advice. Good luck.

 

[Katsmeow]

I don't know anything about the specific funds. However, you are missing a critical piece of information which is the expenses of each fund. You really need to look at that.

 

[Animorph]

You could do much worse than selecting funds by 10 year performance. If a fund is going to outperform its peers it should have a decent 10-year return. On the other hand, it is also possible that just one or two lucky investment decisions have driven some funds to good 10-year returns that they may not duplicate in the future. Or the manager responsible for those returns as retired in the past few years. Hence many here recommend index funds, which ensure average performance, which is actually not a bad thing since "active" funds can vary all over the place.

You need to look into what type of stocks each fund holds, foreign, small-cap, emerging markets, S&P 500, growth, value? It is possible that the funds you have selected happen to invest in a stock sector that has performed very well in the past 10 years. That makes them look much better than other funds that may be very good but don't make those type of investments. The trouble is, that situation can easily reverse. You should try to have some of your portfolio in all of these kinds of assets. That's your asset allocation (AA). If all of your funds kind of look like the S&P 500 then you don't have much diversity. Ideally, you decide on an AA and then select funds to mach it.

You're off to a decent start. You don't have to do anything immediately, just keep learning.

 

[MichaelB]

I don't know anything about the specific funds. However, you are missing a critical piece of information which is the expenses of each fund. You really need to look at that.

+1

From Morningstar http://www.thereformedbroker.com/2012/07/11/low-expenses-are-the-rosetta-stone-of-fund-investing/

If there's anything in the whole world of mutual funds that you can take to the bank, it's that expense ratios help you make a better decision. In every single time period and data point tested, low-cost funds beat high-cost funds. To see the results, click here. Expense ratios are strong predictors of performance. In every asset class over every time period, the cheapest quintile produced higher total returns than the most expensive quintile.

 

[PennStateCLJ]

I'm looking for some input on whether I'm choosing the best funds within my 401k. 25% of my contributions go in each of these 4 funds... COLUMBIA ACORN FUND, Z - BLACKROCK EXT EQUITY MKT K - JP MORGAN SM CAP EQUITY SELECT - AE EUROPACIFIC GROWTH R5.

I chose these funds because they had the best track record or the past 10 years.

Any advice on these investments? Should I be doing anything different?

I agree on the advice about expense ratios of the funds. I quickly googled and found your expense ratios are at least .77% on the Columbia, 1.3% on the JP Morgan, 1% on the blackrock and .55% on the AE Europacific. All of these funds are actively managed. These were the expense ratios from the fund companies, chances are the expenses are even higher within your 401k. These expenses add up to tens of thousands of dollars over time. A good fund expense ratio would be .2% or even .1%.

I suggest you watch these videos (link below) and read The Boglehead's Guide to Investing by Larimore et al.

Video:Bogleheads® investment philosophy - Bogleheads

 

[Animorph]

I agree on the advice about expense ratios of the funds. I quickly googled and found your expense ratios are at least .77% on the Columbia, 1.3% on the JP Morgan, 1% on the blackrock and .55% on the AE Europacific. All of these funds are actively managed. These were the expense ratios from the fund companies, chances are the expenses are even higher within your 401k. These expenses add up to tens of thousands of dollars over time. A good fund expense ratio would be .2% or even .1%.

I suggest you watch these videos (link below) and read The Boglehead's Guide to Investing by Larimore et al.

Video:Bogleheads® investment philosophy - Bogleheads

Hopefully he has some choices like that in his 401k, but beyond an S&P 500 index fund he may be lucky to have any other index funds.

 

[PennStateCLJ]

True, but given his self-stated selection criteria perhaps it wasn't even on his radar. Can't hurt to mention it. I've found self-education is always the best learning experience. He also has no bond funds so learning about non-correlated assets should be beneficial as well.

 

[smr91481]

So it's not just as simple as picking funds with good 10 yr track records like Dave Ramsey says? Lol. I'm on the road now but when I get home tomorrow I'll check the expense ratios and post them.

 

[MBAustin]

I've been invested in Columbia Acorn since the early 1980s. It has outperformed its benchmarks most years so I'm pleased. We haven't added any new $$ in more than 10 years as I was concerned about having too much in one actively managed fund. Although the founder (Ralph Wanger) has retired, the current managers all worked under him and they seem to have continued the style.

That said, remember that in the 1980s we did not have all of the low-expense index funds that are available now. I think if I was starting over, I'd be heavily weighted towards them in most categories.

 

[smr91481]

View attachment Book1.xls

Here is a list of all the stock funds I can choose from along with all of the info

 

[PennStateCLJ]

View attachment 14706

Here is a list of all the stock funds I can choose from along with all of the info

Thanks for posting that. As you can see it only lists expense ratios for a few of the funds. They also list the benchmark the fund is supposed to track and as you can see for a few of the funds, the index is outperforming the active fund, most likely due to the high expense ratios.

I'd be interested to see the ER on all of the funds. The two blackrock choices look like index funds. I'd guess the expense ratios on each of those is something like .07 based on the differences in their performance to the respective index funds over the different time periods.

I'd also like to see bond selections. I think you should consider at least a 90/10 stock/bond split (at a minimum) so you have some non-correlated assets and can buy low and sell high within the 401k.

Can you find how to view the Expense Ratio of all funds, both stock and bonds? Also, do you have other accounts (taxable, ROTH) to coordinate this part of your portfolio with?

 

[smr91481]

View attachment Fund info.xls

Sorry, I just realized that I never replied to this post. I've attached a screenshot of the info for all of the funds that I have to choose from, besides the retirement funds.

 

[smr91481]

Would it be crazy to just put 100% of my allocations in the Columbia Acorn Fund? It has averaged 14.51% since 1970 and has an expense ratio of 0.77%.

The investment seeks long-term capital appreciation.
Under normal circumstances, the fund invests a
majority of its net assets in the common stock of small- and
mid-sized companies with market capitalizations under $5
billion at the time of investment. It invests the majority of its
assets in U.S. companies, but also may invest up to 33% of
its total assets in foreign companies in developed markets
(for example, Japan, Canada and the United Kingdom) and in
emerging markets (for example, China, India and Brazil).
Past name(s): Liberty Acorn Z.

 

[golfnut]

Would it be crazy to just put 100% of my allocations in the Columbia Acorn Fund? It has averaged 14.51% since 1970 and has an expense ratio of 0.77%.

The investment seeks long-term capital appreciation.
Under normal circumstances, the fund invests a
majority of its net assets in the common stock of small- and
mid-sized companies with market capitalizations under $5
billion at the time of investment. It invests the majority of its
assets in U.S. companies, but also may invest up to 33% of
its total assets in foreign companies in developed markets
(for example, Japan, Canada and the United Kingdom) and in
emerging markets (for example, China, India and Brazil).
Past name(s): Liberty Acorn Z.

Not sure if it is crazy but would be real risky. I agree with the following guidelines to investing:

- Spread the risk between U.S and foreign equities (at least 30% of total equities in foreign)

Also, split up equities into large cap (apprx. 70%) and mid/small (apprx. 30%)

- age in bonds (35 yrs old equals 35% in bonds)

- Keep expenses down (below .50).

Golfnut
Just my thoughts - for what they worth (not much) !

 

[PennStateCLJ]

Would it be crazy to just put 100% of my allocations in the Columbia Acorn Fund? It has averaged 14.51% since 1970 and has an expense ratio of 0.77%.

The investment seeks long-term capital appreciation.
Under normal circumstances, the fund invests a
majority of its net assets in the common stock of small- and
mid-sized companies with market capitalizations under $5
billion at the time of investment. It invests the majority of its
assets in U.S. companies, but also may invest up to 33% of
its total assets in foreign companies in developed markets
(for example, Japan, Canada and the United Kingdom) and in
emerging markets (for example, China, India and Brazil).
Past name(s): Liberty Acorn Z.

I wouldn't do so. Although it has performed well over the 10 yr period, compare the two Blackrock stock index funds in the last 1 and 3 yrs- they are outperforming the Columbia Fund. Active funds can achieve better results for a short time period, but over a 60 year investing career it's highly unlikely they will continue to do so. If I were you I would set up a 75/25 stock bond portfolio utilizing 4 funds.

I would go 25% to Blackrock Equity (S&P 500) 25% to the Blackrock Extended market (mid cap and small cap) 25% to the Thornburg International Equity and 25% to either of the bond funds (Blackrock or Pimco.)

We hold the Pimco Total Return in the wife's 401k because she has no index alternative. The Blackrock US Debt index is a great bond fund also, and en expense ratio of only .06%! The overall portfolio above is 75/25 stock/bonds and is very low cost in terms of expenses. 33% of stocks are allocated to international holdings. I also gave you a small/mid cap tilt (meaning they are overweighted relative to their market weight) as they have outperformed large cap stocks over long time periods. Small and mid caps are more volatile in the short term though. The above portfolio is an even split between them 1:1. You can compare a target date fund to see that large caps are usually held 3:1 or so (it fluctuates) to the completion index of mid/small caps.

This is just one example of a possible portfolio. Easy to implement, allocate and rebalance. If you had other accounts- ROTHs, taxable, you'd want to incorporate these into your asset allocation plan and portfolio selection. But based solely on the choices in your 401k, that's how I would allocate for years to come until your need or ability to take investment risk decreases.

 

[pb4uski]

Would it be crazy to just put 100% of my allocations in the Columbia Acorn Fund? It has averaged 14.51% since 1970 and has an expense ratio of 0.77%......

Given how young you are it wouldn't be totally crazy to me, but it might be better to take a more balanced approach and use the index funds and save some money on expenses that will compound between now and 2041.