Questions for Financial Wizzes/Fund Managers

Ebonified wrote:

AllianceBernstein Growth & Income Fund

Domini Institutional Social Equity

Fidelity Diversified International Fund

Goldman Sachs Structured Sm Cap Equity I

Janus Adviser Mid Cap Value Class S

Julius Baer International Equity II - I

PIMCO Total Return - Inst.

Vanguard Capital Opportunity - Admiral

Vanguard Institutional Index Fund

Wells Fargo Adv Capital Growth Adm

Pick the Vanguard funds... Lowest fees and most fund managers don't beat their index anyway (especially after you factor in fees).

PIMCO Total Return is an excellent fund - has very good bond exposure, with high credit quality; the head of PIMCO funds Bill Gross has an excellent track record with fixed-income

Gonna have to echo the Vanguard sentiment. When my comany switched from Vanguard to Fidelity, I rolled my Vanguard 401k into a Vanguard IRA and just started fresh with Fidelity.

Vanguard is great and has great assistance too.

Pick the 3 funds with the best reutrn in 2005. Change the funds each year based on the 3 best last year. This may not optimize your return, but there are several emperical studies that show you are likely to beat the average market return with this strategy. Unless you are a market maven, stick with this simple startegy.

Your employer is providing you with very limited choices. Your options include only 1 index fund, 1 bond fund (PIMCO), 2 international funds, and the rest are all actively managed domestic equity.

Start by identifying what the expense ratio is for each fund. The expense ratio lowers your returns by that amount each year in order to pay the asset manager. You will find that the lowest expense ratio among these selections is found with the Vanguard Institutional Index Fund at about 0.05%. Tough to beat that.

If you see any funds charging 12b-1 fees, avoid those at all costs. In fact, many employers hire an outside advisor to help with the selection and management of their retirement accounts. What they often do not realize is that the more unscrupulous advisors will provide a selection of funds with 12b-1 fees that essentially generate an extra sales commission or kickback on each dollar invested. These fees are in addition to the annual advising fee that the employer pays to the advisor. Often company management is unaware of this relationship.

As far as your selection among these funds, focus on asset allocation at the lowest cost. Research has shown that 90-95% of a portfolios long-term performance is based on asset allocation as opposed to security picking. So in addition to knowing the expense ratio of each fund, understand where each fund falls within a standard "style box". This is a 3x3 matrix of size (large, mid, small) and style (value, blend, growth). If your selected funds overlap too much, you will not end up with the diversification initially thought.

If you are young, you can invest mostly in equities. I would suggest something like 80% domestic and 20% international or maybe even 70-30 if you wanted to get more aggressive. I'm personally a little more cautious on international right now. Several years with a falling dollar and strong emerging markets returns have caused me to believe that things may swing back the other way.

If you would like some fixed income exposure, then you have no choice but to go with the PIMCO fund, but I think its 0.43% expense ratio is still high for a bond fund, especially when long-bonds are only yielding 4.5% in the market. At the same time, this is a lower expense ratio compared to most actively managed bond funds.

The Vanguard Institutional Index fund is the only domestic equity fund that I would invest in among your available options. As far as the two international options, I would probably lean toward the Fidelity Diversified International Equity Fund. However, be aware of which countries an international fund invests in. Some "global" funds also invest in the US market, so you can end up with less international exposure than it appears on the surface.

Finally, if you really want to grow the retirement account, take full advantage of your employer's matching of your retirement accounts. Think of this as free money and a 100% automatic return on every dollar you invest. Contribute as much as you can at least up to the point where the matching cut-off lies. It is better to be a little poor during those early yers.

Best of luck.

Would picking just two funds (the Vanguard funds) diversify me enough? I imagine each fund has a huge variety in it already?

I would take a slightly different approach. Decide upon your risk tolerence and determine a proper allocation.

Then look at the 5 year to 10 year performance of these Funds. If there's management turnover and a new philosophy this could have an obvious impact.

I don't see expenses or fees as a big deal. I invest in an equity fund that beats the Vanguard 500 over a long term period, net of fees. If the manager is good I don't mind him getting rich off me. As long as he's turning in a superior performance with an investing philosophy that I endorse. Vanguard S&P 500 doesn't make sense to me. It's a herd mentality. You're banking on history rather than careful 'value-oriented' scrutiny.

While I don't invest in hedge funds the people who succeed with those investments really don't get hung up on fees. If they weren't making money they wouldn't continue to pour money into these vehicles.

Wow, thank you for taking the time to write such a detailed response!

take your list; throw 3 darts; pick the 3 funds closest and invest 33% in each.

Vanguard is your best bet

Follow the link at the bottom. The ticker symbols for each of your funds are charted.

As you can see, Vanguard has #2 and #3 when comparing 10 year returns.

I'd have to check into the FDIVX a little more before I could recommend it, but, like I said before, you can't go wrong with Vanguard.

Read Nassim Taleb's, "Fooled by Randomness", and then you'll realized that all the advice you've recieved here is pseudo scientific, bullshit.

Unless you're a trader, your investments ain't worth the pot you piss in.

Ebonified wrote:

Would picking just two funds (the Vanguard funds) diversify me enough? I imagine each fund has a huge variety in it already?

I didn't see your question before, but to answer you, for your purposes, yes, both the Vanguard funds will diversify you enough. Diversification is a strategy used to eliminate "individual" risk when investing in stocks. Empirical studies have suggested that as few as 15-20 different stocks are enough to eliminate this type of risk. The risk you still bear, systematic (or market) risk is the risk for which you get rewarded for investing in the market.

That being said, diversification can also mean investing in foriegn stocks, small, mid, and large cap stocks, as well as stocks in different sectors - not to mention different investment vehicles, for instance, bonds. Overall, with these two funds, you are investing in fairly large, US stocks, with perhaps a few smaller companies and maybe a little foreign exposure. Even according to these criteria, I still think you are properly diversified. I'm guessing that you're young, so you can bear more risk than someone who is closer to retirement. Also, since you are asking this question, I'm also guessing you're fairly new to investing, and so, with future investments (IRA, money market funds, mutual funds outside of retirement) you have plenty of opportunity to take more risk and try different investment strategies.

So yeah, I think you're diversified enough with the two Vanguard funds.

mugambo guru wrote:

Read Nassim Taleb's, "Fooled by Randomness", and then you'll realized that all the advice you've recieved here is pseudo scientific, bullshit.

Unless you're a trader, your investments ain't worth the pot you piss in.

I think Warren Buffet would disagree.

Non-professional "day-traders" who sit in their cubes and try to time the market - yes, I think their "investments" are worthless.

A long term, buy and hold strategy will provide you with a comfortable retirement.

....... wrote:

A long term, buy and hold strategy will provide you with a comfortable retirement.

Tell that to the workers at Delphi, United Airlines, IBM, Verison, Tellabs, et al.

Just plug 80% in the S&P500 Index fund, 20% in the international fund, and forget about it. Google Scott Burns and couch potato investing.

Are you suggesting that a long term "buy and hold" strategy requires you to only buy and hold stock in your empolyer?

empire of debt wrote:

....... wrote:

A long term, buy and hold strategy will provide you with a comfortable retirement.

Tell that to the workers at Delphi, United Airlines, IBM, Verison, Tellabs, et al.

road rash wrote:

Are you suggesting that a long term "buy and hold" strategy requires you to only buy and hold stock in your empolyer?

I'm suggesting that the markets are rigged, ponzi schemes that are grossly overvalued and corrupted by insiders and politician proxies in congress. They're being set up for a massive contraction in relative values.

I'm also suggesting that long term holding strategies in paper stocks are likely to leave investors broke.

Passive investing is analogous to stupid investing.It's pseudo scientific, gambling at best.

empire of debt wrote:

Tell that to the workers at Delphi, United Airlines, IBM, Verison, Tellabs, et al.

Okay.

Hey! Workers at Delphi, United Airlines, IBM, Verison (is that a company?) Tellabs! A long term buy and hold strategy is a good way to a comfortable retirement!

I never said invest your retirement money in the company you work for. In fact, I would advise against it.