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401k and Personal Finance

My 401k strategy

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New 401k in Vanguard
Two weeks into working for new employer, today I am able to make my 401k selections from Vanguard. Sweet! It only took me a few minutes to make my choices:

(30%) S&P 500 index fund (VFINX)
(30%) Winsor II (VWNFX)
(40%) International value (VTRIX)

If there is one thing I learned from the recent market drop, that is: DO NOT chase the short term gains, pursue the long term gains instead. Along these lines, I pass over all the sexy names such as Dodge Cox (which lost quite a bit because of Fannie/AIG), Goldman. I am stay with good old Vanguard.

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401k and Personal Finance

Fund selections for Vanguard IRA

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I picked the following funds (and their weight) for my Vanguard IRA yesterday.

Vanguard International Value 50% (developed market large cap value)
Vanguard Winsor II 25% (US large cap value)
Vanguard Selected Value 25% (US mid cap value)

The first two funds are in my current 401k plan, I found the Vanguard Selected Value through Kiplinger magazine.

1) Performance
I looked at a fund’s 5 and 10 years performanace. I found something interesting: most funds could not beat its bench index consistently. For instance, Vanguard Explorer Fund and its bench mark is listed below:

Average Annual Returns—Updated Monthly as of 11/30/2007

1 Year 3 Year 5 Year 10 Year
Explorer Fund Investor 5.53% 9.71% 14.24% 9.44%
Russell 2500 Growth Index 9.52% 11.79% 15.93% 6.60%

I found Vanguard Intl Value fund to be an exception. Vanguard Winsor II also faired well. I left out fund such as Vanguard Prime Cap Core, because it does not have 5 years track record.

2) Weight

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401k and Personal Finance

Two baskets for our retirement accts

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Roll over IRA
In early Nov. I received a letter from Vanguard, it says I am eligible to transfer some of my 401k to an IRA account. I thought about it, the pros and cons, and decided to do it yesterday. Here are my rationale:

1) Ideally I like to keep all my retirement in one place, but one problem is I am not very familar with the new funds avaiable in the new 401k plan. On the other hand, I have been with Vanguard for a while and I know some of the funds are really good (good enough to make me sleep well in the night).

When I say Vanguard is good, I am not only talking about the fees, the performance, etc; but also their brand: it is one of the most respected mutual fund companies in the world. I rememeber a few years ago NY AG Spizer investigated many mutual funds, and I did not heard Vanguard name there (come back to the sleep well factor…).

2) Diversify: this will also allow me to diversify my 401k (IRA); and I can compare the performance of two baskets as time goes on.

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401k and Personal Finance

New 401k plan

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No I haven not changed my employer or anything, but my company was acquired by a global 50 company this year, and from next year we will have new 401k plan. Currently my 401k is in Vanguard and I am happy with them so far. One advantage with Vanguard is they have the lowest fees in the industry. If all other things are equal (in the long run, I do believe the performance of most large cap stock funds tend to converge), lower fee means better performance for investors.

nest egg pic

(Picture from Money Magazine)

That being said, I also found some interesting things about my new 401k plan: the new funds categories by the investment regions; and the company stock.

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401k and Personal Finance

Growth Fund or Value Fund?

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I prefer value fund in my 401K. This is from what I read (don’t remember exactly where) and from looking at the returns of funds in my 401K. Barrons’ statistics confirmed this. The worst growth fund is large cap growth. I don’t have any of those.

Go “values” 🙂