Invest in multiple funds or in one?

[Guest]

So I'm starting my 401K, is it better to invest in one or in 25+ funds?

[saladdin69]

So I'm starting my 401K, is it better to invest in one or in 25+ funds?

Who's the 401k with?

 

The problem is with so many funds you will have a ton of overlap so you will be paying more in fees for nothing.

 

I have 5 which I am beginning to think is 1 too many. I have a total index, international, bond (iffy on this one), small cap and mid cap.

 

You pay fees on each fund. The less you use that gives you the stock/bond mix and risk you can stomache will work.

 

A fund, by its nature, is diversified. But if you have too many that overlap you kinda lose that protection against a big drop.

[Guest]

Fidelity

[Kevin20]

Definitely don't spread your money out among 25+ funds. That would accomplish nothing except leave you confused and ignorant forever as to what you're invested in.

 

If you really want diversification, you might put the money into 5 or 6 funds. No point doing more than that. It's an issue of diminishing returns -- there is some benefit to diversifying, but beyond a handful of funds, the additional benefit is smeared out into nothing.

 

If you have a Fidelity 401k you probably have great options for diversifying. Not knowing the funds specifics, but you probably want to spread your money among these kinds of funds -- if you looked into it, you'd probably have all of these represented:

 

Large Cap stock / S&P 500 fund

Small Cap stock fund

International equity fund

Government bond fund

REIT (Real Estate Investment Trust) fund

 

That right there pretty well covers the basics of diversification and gets you into all three major asset classes: stocks, bonds, real estate; with both domestic and some foreign exposure. That's what you want: DIFFERENT things that behave differently as the market moves -- that way the portfolio combination mutes your risk and volatility. But that's why there is no point in investing in two different funds that do about the same thing, which you'd want to look into, to avoid.

 

You can target more specific diversification, but if you don't REALLY know what you're doing, there's no point trying.

Edited March 12, 2013 by Kevin20

[ArchonInitiative]

Bogleheads, the CreditBoards of investing:

 

http://www.bogleheads.org/wiki/Three-fund_portfolio

[hegemony]

Definitely don't spread your money out among 25+ funds. That would accomplish nothing except leave you confused and ignorant forever as to what you're invested in.

 

I own about 20 funds overall (across several retirement accounts and directly from MF companies) and I know exactly what I am invested in. is this wrong?

[Guest]

Should I fund a Roth IRA as well? But doing a 401K is a no brainer, right?

[saladdin69]

 

Definitely don't spread your money out among 25+ funds. That would accomplish nothing except leave you confused and ignorant forever as to what you're invested in.

 

I own about 20 funds overall (across several retirement accounts and directly from MF companies) and I know exactly what I am invested in. is this wrong?

If the average bear did this then I'd guarantee there would be some overlap. Maybe you have specific niche funds that don't. If that is the case then go for it. But you have to admit if the average bear picked 20 funds there would be a lot of wasted fees and unnecessary overlap.

[saladdin69]

Should I fund a Roth IRA as well? But doing a 401K is a no brainer, right?

Standard answer is to get all the 401k match you can from your employer then go from there. Most people say to do the roth. My thoughts are not so automatic. Tax rates are a factor and I have a hard time thinking the average bear will save enough to be in a higher bracket when they retire. But if you do pretax and post tax you kinda hedge your bets, that's what I do.

 

But if you did the 401k and then hit the roth I don't think that is really a "wrong" way of doing it and I wouldn't really argue too much if anyone went with that logic. It's kind of genericly "correct" but each person is different based on income, profession etc...

[itrev82]

Should I fund a Roth IRA as well? But doing a 401K is a no brainer, right?

 

I do 401k at my company up to the amount they will match - then I put additional in a Roth. That way I am growing both a pre-tax and tax-free fund for later.

[bjk123]

Assuming your Fidelity 401k looks like mine, you've basically got three buckets to choose from:

1) The life strategy bucket. These are the blended "funds of funds" that target a certain year range for retirement. It handles the diversification across stocks/bonds/etc for you. If you feel that their allocation meets your needs, they are a decent starting point for the novice investor.

2) The core bucket. These are the index funds like "total stock market index" "corporate bond index" "international stock index" For the most part these are the funds that are bundled to make bucket 1. Investing in these funds allows you to more tightly control the allocation if your investment desires don't match the blended funds.

3) The expanded bucket. These are specialized funds in just about any niche you can imagine. They tend to have higher expense ratios, so I'd stay away from them unless you have a strong desire to weight your exposure to a specific market segment.

 

You could either go all in with bucket 1, or use Kevin's advised mixture out of bucket 2.

 

Some employers that use Fidelity as their 401k also contract with them to provide free counseling over the phone to help with figuring out what best meets your needs. It might be worth checking to see if your employer is one of them.

[Guest]

Mine just lists 25-30 funds between, small cap, large cap, bonds and so forth. My choices are to pick funds.

[saladdin69]

Mine just lists 25-30 funds between, small cap, large cap, bonds and so forth. My choices are to pick funds.

Highlight them with their ticker name and copy/paste here.

Mine is Fidelity also.

[Guest]

Large Cap

ABF LG CAP VAL INV

Inception Date 08/01/1994

MAINSTAY LGCP GR R1

Inception Date 04/01/2005

SPTN 500 INDEX ADV

Inception Date 02/17/1988

TRP DIV GROWTH

Inception Date 12/31/1992

Mid-Cap

MSIF MID CAP GRTH P

Inception Date 01/31/1997

RDGWTH MID CAP VAL I

Inception Date 11/30/2001

SPTN EXT MKT IDX ADV

Inception Date 11/05/1997 View Restrictions

Small Cap

HEARTLAND VAL PLS IS

Inception Date 05/01/2008

JANUS TRITON T

Inception Date 02/25/2005

ROYCE PA MUTUAL INV

Inception Date 10/31/1972

VANG SM CAP IDX SIG

Inception Date 12/15/2006

International

AMER CAP WRLD G&I R4

Inception Date 06/27/2002

FID INTL DISCOVERY

Inception Date 12/31/1986 View Restrictions

SPTN INTL INDEX ADV

Inception Date 11/05/1997 View Restrictions

Blended InvestmentHelp for Blended Investment

Investment

TRP RETIRE 2005 ADV

Inception Date 05/31/2007

TRP RETIRE 2010 ADV

Inception Date 10/31/2003

TRP RETIRE 2015 ADV

Inception Date 05/31/2007

TRP RETIRE 2020 ADV

Inception Date 10/31/2003

TRP RETIRE 2025 ADV

Inception Date 05/31/2007

TRP RETIRE 2030 ADV

Inception Date 10/31/2003

TRP RETIRE 2035 ADV

Inception Date 05/31/2007

TRP RETIRE 2040 ADV

Inception Date 10/31/2003

TRP RETIRE 2045 ADV

Inception Date 05/31/2007

TRP RETIRE 2050 ADV

Inception Date 12/29/2006

TRP RETIRE 2055 ADV

Inception Date 05/31/2007

TRP RETIRE INC ADV

Inception Date 10/31/2003

Bond InvestmentsHelp for Bond Investments

Investment

Stable Value

WF STABLE VALUE

Inception Date 10/01/1985

Income

FID GNMA

Inception Date 11/08/1985

JANUS HIGH YIELD I

Inception Date 07/06/2009

PIM TOTAL RT INST

Inception Date 05/11/1987

SPTN US BOND IDX ADV

Inception Date 03/08/1990

All Eligible Investments

Edited March 15, 2013 by Guest

[saladdin69]

 

Large Cap

ABF LG CAP VAL INV

Inception Date 08/01/1994

MAINSTAY LGCP GR R1

Inception Date 04/01/2005

SPTN 500 INDEX ADV

Inception Date 02/17/1988

TRP DIV GROWTH

Inception Date 12/31/1992

Mid-Cap

MSIF MID CAP GRTH P

Inception Date 01/31/1997

RDGWTH MID CAP VAL I

Inception Date 11/30/2001

SPTN EXT MKT IDX ADV

Inception Date 11/05/1997 View Restrictions

Small Cap

HEARTLAND VAL PLS IS

Inception Date 05/01/2008

JANUS TRITON T

Inception Date 02/25/2005

ROYCE PA MUTUAL INV

Inception Date 10/31/1972

VANG SM CAP IDX SIG

Inception Date 12/15/2006

International

AMER CAP WRLD G&I R4

Inception Date 06/27/2002

FID INTL DISCOVERY

Inception Date 12/31/1986 View Restrictions

SPTN INTL INDEX ADV

Inception Date 11/05/1997 View Restrictions

Blended InvestmentHelp for Blended Investment

Investment

TRP RETIRE 2005 ADV

Inception Date 05/31/2007

TRP RETIRE 2010 ADV

Inception Date 10/31/2003

TRP RETIRE 2015 ADV

Inception Date 05/31/2007

TRP RETIRE 2020 ADV

Inception Date 10/31/2003

TRP RETIRE 2025 ADV

Inception Date 05/31/2007

TRP RETIRE 2030 ADV

Inception Date 10/31/2003

TRP RETIRE 2035 ADV

Inception Date 05/31/2007

TRP RETIRE 2040 ADV

Inception Date 10/31/2003

TRP RETIRE 2045 ADV

Inception Date 05/31/2007

TRP RETIRE 2050 ADV

Inception Date 12/29/2006

TRP RETIRE 2055 ADV

Inception Date 05/31/2007

TRP RETIRE INC ADV

Inception Date 10/31/2003

Bond InvestmentsHelp for Bond Investments

Investment

Stable Value

WF STABLE VALUE

Inception Date 10/01/1985

Income

FID GNMA

Inception Date 11/08/1985

JANUS HIGH YIELD I

Inception Date 07/06/2009

PIM TOTAL RT INST

Inception Date 05/11/1987

SPTN US BOND IDX ADV

Inception Date 03/08/1990

All Eligible Investments

My Fidelity has a few more choices but from yours I have the

SPTN 500 INDEX ADV

Basic Index

SPTN INTL INDEX ADV

International Flavor ( Think Toyota and Nestle type companies not some mom and pop company.?

SPTN US BOND IDX ADV

Read up on Bond funds with all the "interest rates will explode" paranoia going around.

If you wanted a single fund, something like this would work.

TRP RETIRE 2045 ADV

[Kevin20]

 

Definitely don't spread your money out among 25+ funds. That would accomplish nothing except leave you confused and ignorant forever as to what you're invested in.

 

I own about 20 funds overall (across several retirement accounts and directly from MF companies) and I know exactly what I am invested in. is this wrong?

 

Not that that's wrong per se, but I do suspect you're not accomplishing anything useful after about 8 or so mutual funds. What is the benefit of ADDING another asset to a portfolio? Well, two things: increase the alpha, or decrease the beta. Beta is volatility, which is considered to proxy risk. Alpha represents risk-adjusted return ... essentially, the actual demonstrated skill of the fund manager, or behavior of the investment. Like the name of that website, "seekingalpha" ... that means trying to find an investment or fund that performs better than others that have a similar risk (beta).

 

So where buying 20 funds might not be productive is: beyond some handful of funds, adding another fund of any type is not going to reduce beta ... unless it's a dead solid thing like a savings account, which will definitely reduce potential return because it's paying very little interest. Even if you think you find a new fund that should increase alpha (e.g., say Peter Lynch has come out of retirement and opened a new fund), it's better to just replace a current fund and keep the same number of funds. That way your beta remains the same, your potential return is higher, and you don't have too many funds to keep track of.

 

That said, if you actually enjoy finding funds and monitoring them, maybe you find it's like putting together a jigsaw puzzle ... well that provides you a benefit and that's fine. But probably not going to improve the portfolio performance or risk profile.

 

I'm a bit rusty on the academics, but I think Harry Marcowitz addressed this in his seminal work in the 1950s.

[Guest]

Sweet, thanks for the advice

Janus looks pretty good.

[hegemony]

 

 

Definitely don't spread your money out among 25+ funds. That would accomplish nothing except leave you confused and ignorant forever as to what you're invested in.

 

I own about 20 funds overall (across several retirement accounts and directly from MF companies) and I know exactly what I am invested in. is this wrong?

 

Not that that's wrong per se, but I do suspect you're not accomplishing anything useful after about 8 or so mutual funds. What is the benefit of ADDING another asset to a portfolio? Well, two things: increase the alpha, or decrease the beta. Beta is volatility, which is considered to proxy risk. Alpha represents risk-adjusted return ... essentially, the actual demonstrated skill of the fund manager, or behavior of the investment. Like the name of that website, "seekingalpha" ... that means trying to find an investment or fund that performs better than others that have a similar risk (beta).

 

So where buying 20 funds might not be productive is: beyond some handful of funds, adding another fund of any type is not going to reduce beta ... unless it's a dead solid thing like a savings account, which will definitely reduce potential return because it's paying very little interest. Even if you think you find a new fund that should increase alpha (e.g., say Peter Lynch has come out of retirement and opened a new fund), it's better to just replace a current fund and keep the same number of funds. That way your beta remains the same, your potential return is higher, and you don't have too many funds to keep track of.

 

That said, if you actually enjoy finding funds and monitoring them, maybe you find it's like putting together a jigsaw puzzle ... well that provides you a benefit and that's fine. But probably not going to improve the portfolio performance or risk profile.

 

I'm a bit rusty on the academics, but I think Harry Marcowitz addressed this in his seminal work in the 1950s.

 

I am famliar with the research but it often assumes I can buy the same handful of funds when in fact retirement vehicles are often tied to specific fund families or even limited to a few funds. Furthermore, there can be specific types of risk one wants to assume that can't be found in more generally purpose funds. For instance, 6 of my funds are geography specific and one of them is even focused more specifically on small caps in one large emerging market (MCSMX). To have just one emerging market fund, such as FEMEX, does not get you certain types of exposure (FWIW, I own and like FEMEX too).

 

If someone is chasing 20 different combinations of US large cap, mid cap, and small caps sure there is a lot of duplication.

[Guest]

Any recommendation on funds?

[Guest]

Well, it is fair to say I should contribute to my company's 401K plan, right? I'm an salamander not to? Or get my own IRA?

[ArchonInitiative]

Well, it is fair to say I should contribute to my company's 401K plan, right? I'm an salamander not to?

 

Unless you hate money!

 

Yes, you should, up to the point where they match it. It is one of the highest returns you can safely get.

After you reach the max, then you get into your own.

[boomhower1820]

If they match definitely do your work sponsored plan, it's free money. My employer puts in a certain percentage as required by state law. I put in my own percentage as a Roth contribution to hedge both sides.

 

 

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[Guest]

Yes, they match to 4% and I'm not fully vested until another 2-3 years with the company...