Which would you choose

[shoe]

My 28 year old unmarried son recently lost his job in the hotel industry and was fortunate enough to find a great job with a medical supply company. He will be able to start contributing to a 401k in January and has asked for help in choosing the fund to invest with. I am hoping that those here who would care to would offer an opinion regarding his choices;

MFS Value 1.13% exp
SSgA S&P Index Fund .16% exp
American Funds Growth .68% exp
Goldman Sachs MidCap Value .76% exp
Allianz CCM MidCap .94% exp
Royce Total Return 1.08%
Baron Growth 1.31%
Dodge & Cox International .65%

Thanks!

 

[Notmuchlonger]

Certainly the SP fund. The rest would be up to how your son feels about risk.

 

[Grep]

The S&P fund by a mile. The rest are too expensive - some are almost 10 times more expensive. If he insisted on branching out, a little (say 15-20%) in the D&C international might eventually be worthwhile.

 

[freebird5825]

- SKIP IT - American Funds Growth .68% exp, > 5% front load . i like the fund company, but a front load is just a dinosaur practice anymore.

- TAKE A CLOSER LOOK - Dodge & Cox International .65% exp - no front load, a very good fund until recently. an excellent buy right now for some overseas diversification. things won't always be this bad. Vanguard has some notable overseas funds too, like VEURX.

- COMPARE TO OTHER LOW COST S&P 500 FUNDS - SSgA S&P Index Fund .16% exp - please compare to Vanguard S&P500, ticker VFINX, exp 0.15%

i understand he is limited to only his new company's 401(k) fund choices, but comparisons never hurt.

 

[ziggy29]

Of these choices, I'd go about 2/3 with the index fund and maybe 1/3 in the Dodge & Cox International.

It's fine and good to compare these funds with other funds with lower expenses, but in a 401K going "off the menu" typically isn't an option, which means you either

* suck up the extra costs to be more diversified
* accept a less diversified (but lower cost) portfolio, or
* (best of all, IMO), stick with the low cost options in this 401K and look for other low-cost options for other asset classes in a Roth IRA.

 

[FinanceDude]

- SKIP IT - American Funds Growth .68% exp, > 5% front load . i like the fund company, but a front load is just a dinosaur practice anymore.

If the 401K plan has over $1 million in it, they buy American at NAV, so find that out first.........

 

[travelover]

S&P index fund. Round out the rest of your asset allocation in an IRA or taxable account at Vanguard.

 

[FinanceDude]

S&P index fund. Round out the rest of your asset allocation in an IRA or taxable account at Vanguard.

Why do that? The S&P 500 index has a negative 3, 5, and 10 year record, and you say to invest ALL his money in that, just because its the lowest cost? Sounds like you are telling him to throw his money away..........

 

[shoe]

Thanks for all your input so far. Glad to see so many pointing towards the S&P since that was where I was leaning. His HR department gave him literature indicating it as a moderate risk / moderate return fund and the D&C as high risk/ high return. I would love to hear more opinions. TIA

 

[ziggy29]

His HR department gave him literature indicating it as a moderate risk / moderate return fund...

That's an HR department asking to be sued.

The S&P 500 index was down as much as 48% year-to-date last month. I don't think a fund that can drop 48% in a year can be reasonably categorized as "moderate risk."

 

[Notmuchlonger]

Or he could just pay a FA to lose him money.

 

[travelover]

Why do that? The S&P 500 index has a negative 3, 5, and 10 year record, and you say to invest ALL his money in that, just because its the lowest cost? Sounds like you are telling him to throw his money away..........

I know, I know, if he just paid you, he'd soon be rich.

The guy is 28, he is not investing for a 3,5 or 10 year window.

 

[unclemick]

Why do that? The S&P 500 index has a negative 3, 5, and 10 year record, and you say to invest ALL his money in that, just because its the lowest cost? Sounds like you are telling him to throw his money away..........

Duh - that is exactly why you should be buying it by the boatload! Buy low. Unless America is going out of business in his lifetime.

heh heh heh -

 

[Bestwifeever]

Congrats to your son on getting a great new job so quickly--that's all.

 

[RetiredWW]

Why do that? The S&P 500 index has a negative 3, 5, and 10 year record, and you say to invest ALL his money in that, just because its the lowest cost? Sounds like you are telling him to throw his money away..........

I tend to agree with you. Sooooo, which of the funds would you then recommend?

 

[FinanceDude]

I know, I know, if he just paid you, he'd soon be rich.

The guy is 28, he is not investing for a 3,5 or 10 year window.

Easy to say when its not YOUR money....... Based on your premise, one should always buy the fund with the lowest ER, NO MATTER what the longterm return is.............interesting.......

 

[FinanceDude]

I tend to agree with you. Sooooo, which of the funds would you then recommend?

I would like to know if the 401K is big enough so he is buying the funds involved at NAV. Usually this occurs at the $1 million mark in assets in the plan. Maybe shoe can get that info for me.......

 

[Spanky]

S&P Index Fund
Dodge & Cox International

 

[FinanceDude]

Is there a match from the employer??

 

[travelover]

Easy to say when its not YOUR money....... Based on your premise, one should always buy the fund with the lowest ER, NO MATTER what the longterm return is.............interesting.......

Actually, it is probably one of the best indicators of long term performance. Look at 10 year performance in the link, as an example.

Correlation

If you want a sparring partner for index vs manged funds, stop by the Bogleheads forum.

 

[shoe]

FinanceDude I have to assume they have at least a million invested since they are the largest medical supply outlet in the US and have been around since 1928. They will match his contribution 25%. I so appreciate everyone's opinion!

 

[FinanceDude]

FinanceDude I have to assume they have at least a million invested since they are the largest medical supply outlet in the US and have been around since 1928. They will match his contribution 25%. I so appreciate everyone's opinion!

Well, in my opinion he should contribute at least enough to get the entire match. Most companies do a percentage up to a certain amount, say 25 cents on the dollar on the first 6% or something.

The size of the pplan means that he is not going to be paying any loads to invest. Not knowing how risky of an investor he is, I would look at the following:

American Funds Growth Fund of America
Dodge and Cox International
Baron Growth
MFS value
SSga S&P 500 Index fund (some)

If all of us can agree that we are in a recession, smaller stocks tend to lead the way out of a recession, so Baron Growth is a fit. Dodge and Cox are well run, their international fund is no exception. American Funds is a low cost fund company. I am not a nig MFS fan since they burned investors in the tech bubble collapse, but their value funds are ok.

He should put some in the S&P 500 fund, but I wouldn't just "throw it all in" as some would suggest........

 

[ziggy29]

He should put some in the S&P 500 fund, but I wouldn't just "throw it all in" as some would suggest........

I think it depends on how much he throws into the 401K as opposed to, say, a Roth IRA. If someone puts enough into a Roth relative to the 401K, I indeed would consider only the index fund in the 401K and look for good low-cost alternatives for other asset classes in the Roth.

But if most of the retirement contributions will be in the 401K, they'd probably need to have more types of funds than just the index fund in order to maintain a prudent AA.

 

[FinanceDude]

I think it depends on how much he throws into the 401K as opposed to, say, a Roth IRA. If someone puts enough into a Roth relative to the 401K, I indeed would consider only the index fund in the 401K and look for good low-cost alternatives for other asset classes in the Roth.

But if most of the retirement contributions will be in the 401K, they'd probably need to have more types of funds than just the index fund in order to maintain a prudent AA.

How many 28 year olds do you know in general that can max their 401K AND a Roth IRA? You gotta walk before you run.......

 

[ziggy29]

How many 28 year olds do you know in general that can max their 401K AND a Roth IRA? You gotta walk before you run.......

I'm not even talking about maxing out the 401K -- just putting in enough to get all the company match. If there was no company match, I'd just put it all in a Roth, and then add to the 401K only if I maxed out the Roth and still had some left over to invest.