Choosing Mutual Funds...

[texasnightowl]

I am in process of rolling over a small 401k ($2800) to an IRA at Fidelity. I chose Fidelity because there would be no fee on the small account balance (unlike TRP and Vanguard) and because I was very impressed how much time the CSR on the phone spent with me.

 

I will be receiving the check for the rollover this week or early next and will then need to choose which fund I want to invest it in. I am new to investing but I've been using the "research" area on Fidelity's site and talking about it with a friend who is much more knowledgeable than me about investing.

 

For example, I'm searching 4* and higher funds that are open to new investors that have at least a 5 yr average of 10% or higher...I take into account 10yr or LOF as well. Also look at expense ratio and fees.

 

Just wondering what others specifically look at when choosing a fund?

[autoxer]

I look for a low expense ratio & consider my overall asset allocation.

[autoxer]

and I've been picking mostly no load index funds, but if you pick actively managed funds, then you should also consider how long the fund manager has been there & what their annual turnover is.

[cljohnr]

I will be receiving the check for the rollover this week or early next and will then need to choose which fund I want to invest it in.

You will take a massive (30%) tax hit in doing this. If you physically receive the check they are gonna take 20% off the top and hit you with a 10% penalty at tax time next year. You need to have it rolled directly from the 401k to Fidelity if at all possible (it may not be possible because of the low amount). You should contact your current 401k plan to check.

[texasnightowl]

You will take a massive (30%) tax hit in doing this. If you physically receive the check they are gonna take 20% off the top and hit you with a 10% penalty at tax time next year. You need to have it rolled directly from the 401k to Fidelity if at all possible (it may not be possible because of the low amount). You should contact your current 401k plan to check.

 

Nope...it is a direct rollover...the check will be made out to Fidelity, not to me, but the 401k administrator sends the check to me...so no penalty. I inquired into that before I sent the rollover/distribution forms.

[hegemony]

If you are looking at fidelity funds, check out the nordic fund and the leisure fund.

[EasyRhino]

Over the last couple of years, I've become a lot more diligent about asset allocation. It's a little difficult because I have two IRAs, a 401k, and a regular brokerage account, but it's still important. I want to keep with the broad goal of a large proportion of large-cap stocks, and decent chunks of small and international. At the moment, because I feel slightly bearish, I've got maybe 10% in bonds.

 

In general, since I've kind of given up on market-timing and stock selection, I lean very heavily towards index funds or ETFs, due to low expenses.

 

Anyway, if this is your only retirement savings, the $2800 makes it difficult to pick your own funds at Fidelity, since many have $2000 min balances. You'd probably be looking at one of their "funds of funds" Freedom funds. I tend to not like them because I prefer to build my own, but they're solid, and they don't charge any extra fees in addition to the underlying fund's fees.

 

If you have other retirement savings elsewhere, then you could use the IRA to "specialize" in one area, while weighting the 401k or whatever in some other direction.

 

Edit: Oh, i forgot about an ETF. Since you might just be making one lump-sum investment, and ETF can make good sense (one commission up front, one commission to sell 30 years from now, and low expenses). Something like the Vanguard total market ETF (VTI) would get you exposure to basically the entire US stock market, with crazy-low expenses (.07%)

Edited February 17, 2007 by EasyRhino

[texasnightowl]

Figured I'd update and mention which fund I went with. FRESX...the Fidelity Real Estate Fund. Only a 3 * Morningstar rated fund but good long term performance and an expense ratio of 0.83.

 

EasyRhino - I'm a beginner at investing...and getting a late start at it too (I'm early 30's) and my contributions are small for the time being because I'm still paying off credit card debt. So I only have the 2800 at Fidelity and I have a Roth IRA at T Rowe Price to which I contribute $50/month...not much but it's a beginning. I only started that last year (and for about half the year I put in $100/month) and have it at $1100. It's in the Emerging Europe/Mediterranean Fund.

 

I'm attempting to balance paying off credit card debt, student loan debt, retirement savings, a travel fund (planning a trip to Europe later this year), and an emergency fund (don't have one). In addition I'm trying to figure out how to cut expenses so as to possibly take a lower paying job and go back to school. So even though I hate that I am starting late to retirement savings and investing I really can't speed up my contributions yet either! I am not investing in the 401k at my new company either because a) they do NOT match and I'm not impressed with their investment options.

 

The goal is to contribute what I can now...even if it is only the $50/month and try to be in a better place 5 yrs from now to contribute more. Of course...that assumes I figure out what I want to be when I grow up!

 

Anyway, asset allocation is something I will keep in mind...and I had thought about a Total Market Fund but the ones I found at Fidelity required at 10k minimum...so no go on that yet. I went with Fidelity because there is no additional small account fee for being under 5k unlike at Vanguard or TRP.

[highNNdry]

Since it is only $2,800 be bullish and put in in a prescious metals and mineral fund or Diversified international fund.

[sercfm]

Are precious metals a "bullish" position? As for where to go, is Fidelity written in stone? Ask your self where 82 cents of every mutual fund dollar invested went last year.

[54regcab]

With $2,800 on the line pick ONE fund.

[hegemony]

Are precious metals a "bullish" position? As for where to go, is Fidelity written in stone? Ask your self where 82 cents of every mutual fund dollar invested went last year.

fidelity is just one of the better options. t row price and vanguard are as good. and please explain your last point.

[texasnightowl]

Are precious metals a "bullish" position? As for where to go, is Fidelity written in stone? Ask your self where 82 cents of every mutual fund dollar invested went last year.

 

Yes, some of the funds at Fidelity have higher fees than others but the fund I chose has only a 0.8 expense ratio.

 

Plus, I checked with T. Rowe and Vanguard and I didn't feel like paying a $10 small account fee each year which they would charge me (for being under 5k) but that Fidelity does not.

[sercfm]

82 cents of every dollar invested in mutual funds last year went to American Funds. Now, you need to invest through an advisor , however, you pay the same sales charges as you would if you were able to call them up on your own like an Oppenheimer Fund. Now everybody can scream that they will not pay a sales charge, however, you know that over time the increased expense ratios cost much more than the initial charges of quality load funds. Quick Facts on American Funds: Manager Tenure: Last manager lost to competitor, 1977. When you see their 3,5,10 life returns--these are the managers who achieved them. Growth Fund of America is over 200Billion in assets and Barrons says there is still room for more assets.(Fidelity Magellion began to implode at less than 50 Billion). Choose the funds and companies that make you comfortable, do your own due diligence, but....................................look at where the professionals put their money.

[hegemony]

82 cents of every dollar invested in mutual funds last year went to American Funds. Now, you need to invest through an advisor , however, you pay the same sales charges as you would if you were able to call them up on your own like an Oppenheimer Fund. Now everybody can scream that they will not pay a sales charge, however, you know that over time the increased expense ratios cost much more than the initial charges of quality load funds. Quick Facts on American Funds: Manager Tenure: Last manager lost to competitor, 1977. When you see their 3,5,10 life returns--these are the managers who achieved them. Growth Fund of America is over 200Billion in assets and Barrons says there is still room for more assets.(Fidelity Magellion began to implode at less than 50 Billion). Choose the funds and companies that make you comfortable, do your own due diligence, but....................................look at where the professionals put their money.

so you are recommend funds with LOADS? load funds sold via brokers??? no thanks.

Edited February 23, 2007 by hegemony

[sercfm]

Actually I made no reccomendation. I said do your own due diligence. However, the numbers do not lie. lets spend 10 minutes with a SAI on any of your no load funds and I'll show you the real costs -- and it sure is not .08%. Bash brokers, thats fine, Bash insurance Salesmen, thats okay too. Although I do not recall anyone here ever bashing the plumber for getting paid for his expertise? If yets ou are able to do all the research and planning on your own, thats wonderful, however, my clients tend to be better at creating wealth, rather than investing it. It's merely a matter of efficient allocation of a scarce resource--time. A brain surgeon could probably mow his lawn, but he makes more money resecting tumors.

[hegemony]

Actually I made no reccomendation. I said do your own due diligence. However, the numbers do not lie. lets spend 10 minutes with a SAI on any of your no load funds and I'll show you the real costs -- and it sure is not .08%. Bash brokers, thats fine, Bash insurance Salesmen, thats okay too. Although I do not recall anyone here ever bashing the plumber for getting paid for his expertise? If yets ou are able to do all the research and planning on your own, thats wonderful, however, my clients tend to be better at creating wealth, rather than investing it. It's merely a matter of efficient allocation of a scarce resource--time. A brain surgeon could probably mow his lawn, but he makes more money resecting tumors.

I wasn't bashing anyone.

 

I've paid CFP for advice.

 

I've also had "experts" from ameriprise, northwestern mutual, and others try to sell me high cost funds and other products designed to generate them income (e.g., whole life). ameriprise wanted $800 just to do an initial "analysis." a CP through my local CU did it for free.

 

I have no problem with brokers, but too many are not upfront about fees, commissions, and loads. I recently worked with one with a LARGE company who wanted to charge $3000 a year just to "manage" some of our money. The investments he recommended were no better than those I can buy directly from fidelity, vanguard, tr price, etc. the $3000 was the flat rate plus of course he would make money from the funds and other investments he was selling us.

 

opportunity cost is real and I agree that people are often better off buying specialized services, but I've seen to many of CFPs be very ambiguous about costs.

[sercfm]

Fair enough. But if you use referrals from people you trust, alot of the problems, i.e the Ame@$%^&*se's of the world can be avoided.

[hegemony]

Fair enough. But if you use referrals from people you trust, alot of the problems, i.e the Ame@$%^&*se's of the world can be avoided.

well the NWmutual was a referral from a friend...and they want 1% of the balance just to hold the money regardless of how the investments they recommend perform.

[Gail]

I am in process of rolling over a small 401k ($2800) to an IRA at Fidelity. I chose Fidelity because there would be no fee on the small account balance (unlike TRP and Vanguard) and because I was very impressed how much time the CSR on the phone spent with me.

 

I will be receiving the check for the rollover this week or early next and will then need to choose which fund I want to invest it in. I am new to investing but I've been using the "research" area on Fidelity's site and talking about it with a friend who is much more knowledgeable than me about investing.

 

For example, I'm searching 4* and higher funds that are open to new investors that have at least a 5 yr average of 10% or higher...I take into account 10yr or LOF as well. Also look at expense ratio and fees.

 

Just wondering what others specifically look at when choosing a fund?

 

Pick up a copy of Kiplinger's "Mutual Funds 2007" It costs $5.95 but had some good info in it on different types of funds and who offers the best rates, etc. I'm just starting to learn as well and it helped me understand things a bit better.

 

Currently, my dad has been investing my IRAs and earning an average of 12 - 20 percent over the past few years but I figure he won't be around too much longer so I need to learn to handle my own.

 

The mag also includes so info on how to get started with small monthly investments and what the best funds for those are.

 

Hope it helps,

Gail

[mlounsbury]

FYI - If you're really planning on opening an index fund, TRP fee is for index fund accounts with under $10K. Since you're rolling this over and its going to be an IRA, the fee is only assessed if you're under $2K (unless it's an index fund as stated before)

Edited February 25, 2007 by mlounsbury

[Athena53]

Actually I made no recommendation. I said do your own due diligence. However, the numbers do not lie. lets spend 10 minutes with a SAI on any of your no load funds and I'll show you the real costs -- and it sure is not .08%.

 

I hear you, sercfm. I'm paying those "evil" up-front loads on American Funds and my IRR on one of them (CWGIX, closed to new investors) has been running 22% annually for the last 4 years. That's after all expenses. I keep an eye on all of my funds, and there are American Funds I've dumped because they were under-performing (AWSHX, ABALX), but overall I'm very happy. And, as you accumulate more, the front-end expense decreases. I'm paying 2% on new investments in American Funds right now.

 

hegemony, I know what you mean about the guys who want a straight% of your assets. It's a sweet deal- for them!

 

To the OP, a couple of things I look at in addition to expenses:

 

1. How they did in crappy markets. The last 3 years have been fantastic. How did the fund do in 2000-2001 compared to, say the Dow-Jones or similar funds?

 

2. Portfolio turnover. The funds I buy typically have turnover less than 50%/year. Certainly a fund that does a lot of trading can be profitable, but the commissions will eat into the profits and if you're investing outside of a 401(k) or an IRA, you'll get hit hard at tax time with short-term capital gains. One way to look at the tax impact is to check the before- and after-tax returns of the funds and see how close they are.

[sercfm]

You raise a good point. If they want a better explination of downside capture ratios they should ask some of the "amatures right out of high school." Could we please dispel the rumor for a moment that asset based management fees are a bad thing that merely exist to allow us salamanders to prfit irrespective of the losses of our clients? First of all, that assertion is counterintuitive. If your portfolio is 100 at the beginning of the year and 90 at the end I get 1%(a huge misnomer because any account of any size is not paying 1%) I get 9. If your account ends the year at 150, I get 15....I believew our interests in raising your account value are clearly aligned. If my asset base increases, my grid payout increases if it shrinks, so does my payout....our intrrests are one in the same. My avg.account size is 15mm it is ludacris to keep a client of that magnatude in a MF where his individual circumstatces, holding periods, tax sewlling needs etc. can not be addressed independant of the other fund holders. The individual management required of a higer net worth individual warrents additional compensation. (A custom built home costs more than when you buuy in a PUD with three possible layouts to choose from, does'nt it?) If your acount is under say $500K, you probably don't need an actively managed account anyway but don' t kid yourself, mutual funds charge an asset based fee anlong with a 12B1 fee and other fees that more than exceed 1% a year...read your SAI's closely.

[Athena53]

My avg.account size is 15mm it is ludacris to keep a client of that magnatude in a MF where his individual circumstatces, holding periods, tax sewlling needs etc. can not be addressed independant of the other fund holders. The individual management required of a higer net worth individual warrents additional compensation. (A custom built home costs more than when you buuy in a PUD with three possible layouts to choose from, does'nt it?) If your acount is under say $500K, you probably don't need an actively managed account anyway but don' t kid yourself, mutual funds charge an asset based fee anlong with a 12B1 fee and other fees that more than exceed 1% a year...read your SAI's closely.

 

"Tax sewlling needs"? Please explain. I've been doing my own taxes for 30 years and am not sure what you mean.

 

And I just went back and read the SAI of one of my mutual funds (AEPGX)- the total annual expense ratio, including the 12b-1 fee, is 0.8%. Somehow my AE is happy with the $$ he gets from the mutual funds in my account (balance is a little over $1 million) since he's not getting any additional % of assets from me on top of that. I'm pretty low-maintenance- I don't panic on a bad day in the market and tell him to sell it all. I don't need my hand held and I enjoy monitoring my own finances. But he's added value with ideas I hadn't thought of. That's why I appreciate him.

[hegemony]

You raise a good point. If they want a better explination of downside capture ratios they should ask some of the "amatures right out of high school." Could we please dispel the rumor for a moment that asset based management fees are a bad thing that merely exist to allow us salamanders to prfit irrespective of the losses of our clients? First of all, that assertion is counterintuitive. If your portfolio is 100 at the beginning of the year and 90 at the end I get 1%(a huge misnomer because any account of any size is not paying 1%) I get 9. If your account ends the year at 150, I get 15....I believew our interests in raising your account value are clearly aligned. If my asset base increases, my grid payout increases if it shrinks, so does my payout....our intrrests are one in the same. My avg.account size is 15mm it is ludacris to keep a client of that magnatude in a MF where his individual circumstatces, holding periods, tax sewlling needs etc. can not be addressed independant of the other fund holders. The individual management required of a higer net worth individual warrents additional compensation. (A custom built home costs more than when you buuy in a PUD with three possible layouts to choose from, does'nt it?) If your acount is under say $500K, you probably don't need an actively managed account anyway but don' t kid yourself, mutual funds charge an asset based fee anlong with a 12B1 fee and other fees that more than exceed 1% a year...read your SAI's closely.

how does paying 1% and fees make sense over paying fees? are you saying vanguard and fidelity are charging 1% of assets plus fees? I don't think so, but please if they do demonstrate this do...

 

the person who wants 1% (NW mutual) would get paid regardless of performance. sorry, but if my account goes from 300K to 200K you do not deserve $2000.

Edited February 25, 2007 by hegemony