It’s 401k enrollment time, because of my recent job change. I have lived life without 401k contribution for several months now, although I tried to keep up with buying mutual fund Scottrade IRA account. But I found this IRA thing is not as easy my good old 401k account. Couple reasons:
1) Automatic payroll deduction and investment in 401k vs. manually deposit/buy fund in IRA;
2) Dollar average cost (DCA) for the investments (mutual funds) in 401k, vs. picking the best time to buy mutual fund cheap (not easy to time the market);
3) Choosing from about 10 mutual funds vs. choosing from thousands of mutual fund Scottrade offers (a daunting task, which I talked a bit in my earlier post).
Anyway, here is the new mutual funds and their respective weight I chose for my new 401k plan.
Schwab S&P 500 index fund: 10% (from MorningStar, I saw S&P 500 index performance in last 10 years is negative, maybe the next 10 years will be better?)
American Funds Washington Mutual (large cap value): 20% (WaMu is a Scary name, it’s the first time I heard about American Funds, I did a little research and put the Wiki link below).
CRIMX (CRM middle cap value): 30% (I had this one from my previous employer 401k plan, seems like a good fund, hence the heavy weight)
American Beacon Small Cap Value: 20% (I like both small cap and value fund)
American Funds international growth: 20% (got to have some international, although nowadays most S&P 500 and many US middle cap have international exposure; thought to take advantage of recent Europe weakness).
1) Long term, 5 year, 10 year performance is more important than one year, year to date;
2) When look at each year performance vs. benchmark, I don’t look for “big beat”, I am more interested how the fund performance does in a down year, for instance year 2008. Defense is more important than offense.
3) Rebalance: it’s the first time I saw an “automatic” rebalance option. Here is a good one written by mymoneyblog on rebalancing. I think rebalance makes sense here (once a year) because star managers don’t have winning streak forever, case in point, look no further than Legg Mason’s Bill Miller, he has 15 years beating S&P, then in 2006, 2007 an 2008 he lost all that money and clients.
Wiki entry for American Funds. Note the parent company The Capital Group Companies is one of the largest investment management companies in the world. Before this new 401k thing, I am mainly a Vanguard person, and I am aware of Fidelity, T.R.Price, Legg Mason etc. Hopefully this American Funds can bring me some good performance.