Why do people end up with 10-15 funds in their 401k?

Discuss all general (i.e. non-personal) investing questions and issues, investing news, and theory.
Topic Author
burritoLover
Posts: 328
Joined: Sun Jul 05, 2020 12:13 pm

Why do people end up with 10-15 funds in their 401k?

Post by burritoLover »

It seems like new people to the forum asking for a portfolio review often have numerous funds in their 401ks or IRAs where the number, selection, and allocation of the funds don't make much sense. Are these some kind of robo-advisor picks or do people tend to just overload on funds cause they think more must be better?
"Your money is like a bar of soap. The more you handle it, the less you’ll have." - Gene Fama
retiredjg
Posts: 41905
Joined: Thu Jan 10, 2008 12:56 pm

Re: Why do people end up with 10-15 funds in their 401k?

Post by retiredjg »

There may be many answers to this. One is they think they are diversifying by having a lot of funds.
terran
Posts: 1702
Joined: Sat Jan 10, 2015 10:50 pm

Re: Why do people end up with 10-15 funds in their 401k?

Post by terran »

retiredjg wrote: Mon Sep 07, 2020 8:28 am There may be many answers to this. One is they think they are diversifying by having a lot of funds.
+1 -- that's what came to mind for me too.

Also, if they've ever had and advisor involved in their finances, advisors seem to like to slice and dice things a lot to make investing look difficult to prove their value.
k b
Posts: 125
Joined: Tue Oct 15, 2013 8:43 pm

Re: Why do people end up with 10-15 funds in their 401k?

Post by k b »

Another answer is that - from time to time - they identify a sector (biotech or whatever) or region (EM?) and try to find funds that provide such exposure.
Mike Scott
Posts: 1407
Joined: Fri Jul 19, 2013 2:45 pm

Re: Why do people end up with 10-15 funds in their 401k?

Post by Mike Scott »

Some people chase hot funds the same way some people chase individual hot stocks.
Sometimes is it clutter that accumulates over time.
It may be a mistaken impression of diversity.
Buying whatever your buddy or the current fund advisor suggests.
Robdac
Posts: 46
Joined: Tue Aug 06, 2019 3:23 pm

Re: Why do people end up with 10-15 funds in their 401k?

Post by Robdac »

Sometimes investors hire a "financial advisor."

The broker gets them into a ton of different funds to deliberately complicate things. It makes the broker appear very knowledgable. It also makes the investor think that they can't possibly invest the time required to learn to do something so complex on their own. By unnecessarily complicating something that really isn't complex the broker attempts to create job security for themselves.
little_star
Posts: 43
Joined: Tue Jun 16, 2020 5:08 pm

Re: Why do people end up with 10-15 funds in their 401k?

Post by little_star »

terran wrote: Mon Sep 07, 2020 8:30 am
retiredjg wrote: Mon Sep 07, 2020 8:28 am There may be many answers to this. One is they think they are diversifying by having a lot of funds.
+1 -- that's what came to mind for me too.

Also, if they've ever had and advisor involved in their finances, advisors seem to like to slice and dice things a lot to make investing look difficult to prove their value.
From personal anecdote, I agree with both of these. I started with TIAA-CREF back when they only offered TIAA traditional and a handful of CREF funds. My thought at the time was: I should pick several of the CREF funds, because why else would they have them available if we should not invest in all of them. Fortunately, the limited choice meant that I built a portfolio that only had a few different funds. Many years later I used their "free consultation" as a check on my portfolio. The recommended revised portfolio was a complicated mixture of different mutual funds from different mutual fund families. According to the advisor, their monte carlo analysis indicated 98% success for this new portfolio. However, the advisor reluctantly admitted that my existing (simple) portfolio came out with a 99% success rate in their monte carlo analysis. Nonetheless, still, he recommended that I change to the complicated portfolio despite its (slightly) lower predicted success rate. I thanked him, but chose not to make any changes at the time. Although TIAA is no longer my current 403(b) provider, I happily continue with my slightly overlapping diversified portfolio of 4 CREF funds + TIAA traditional for the funds invested previously through them. I have a similar simple portfolio at my new 403(b) financial institution, despite many many more options. So, my one personal example is both of the above: novice investors thinking that more funds help diversify a portfolio and, separately, that advisors like to create complicated portfolios (I will not speculate on the reason for this, but it does seem like a way to scare investors into using an advising service that charges additional fees).
student
Posts: 5159
Joined: Fri Apr 03, 2015 6:58 am

Re: Why do people end up with 10-15 funds in their 401k?

Post by student »

little_star wrote: Mon Sep 07, 2020 9:06 am According to the advisor, their monte carlo analysis indicated 98% success for this new portfolio. However, the advisor reluctantly admitted that my existing (simple) portfolio came out with a 99% success rate in their monte carlo analysis.
lol.
arf30
Posts: 738
Joined: Sat Dec 28, 2013 11:55 am

Re: Why do people end up with 10-15 funds in their 401k?

Post by arf30 »

I've worked at several places where the 401k provider contacts employees to pitch advisory services (including Fidelity), once you authorize them they'll go into your account and swap you into high cost funds.
User avatar
bertilak
Posts: 7843
Joined: Tue Aug 02, 2011 5:23 pm
Location: East of the Pecos, West of the Mississippi

Re: Why do people end up with 10-15 funds in their 401k?

Post by bertilak »

burritoLover wrote: Mon Sep 07, 2020 8:26 am It seems like new people to the forum asking for a portfolio review often have numerous funds in their 401ks or IRAs where the number, selection, and allocation of the funds don't make much sense. Are these some kind of robo-advisor picks or do people tend to just overload on funds cause they think more must be better?
In my case (back in the day) it was a process of accretion, encouraged by my advisor. I was stumbling around, looking for a plan or a magic bullet. Just piling one thing on top of another.

I picked an assets-under-management advisor to set me on the right path but slowly realized he wasn't doing anything to help -- just nudging me along the same path, stirring up a stew-pot of random assets. "Slowly realized" because I was busy earning a living and thought he was doing all the thinking about investing. That's why I was paying him 1.25% AUM!

I repeatedly asked him to explain what the plan was and how all those pieces fit together. The best he could say was that they were recommended by his company's research department. When he couldn't express a coherent plan, I dropped him and his company.
May neither drought nor rain nor blizzard disturb the joy juice in your gizzard. -- Squire Omar Barker (aka S.O.B.), the Cowboy Poet
User avatar
ruralavalon
Posts: 19447
Joined: Sat Feb 02, 2008 10:29 am
Location: Illinois

Re: Why do people end up with 10-15 funds in their 401k?

Post by ruralavalon »

burritoLover wrote: Mon Sep 07, 2020 8:26 am It seems like new people to the forum asking for a portfolio review often have numerous funds in their 401ks or IRAs where the number, selection, and allocation of the funds don't make much sense. Are these some kind of robo-advisor picks or do people tend to just overload on funds cause they think more must be better?
In my case it was a stock picker as an advisor.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started
Dottie57
Posts: 9184
Joined: Thu May 19, 2016 5:43 pm
Location: Earth Northern Hemisphere

Re: Why do people end up with 10-15 funds in their 401k?

Post by Dottie57 »

I know someone who puts equal amounts in each fund in her 403b.
Topic Author
burritoLover
Posts: 328
Joined: Sun Jul 05, 2020 12:13 pm

Re: Why do people end up with 10-15 funds in their 401k?

Post by burritoLover »

Does Vanguard's PAS do the same thing (load up on unnecessary funds to make it appear it is not something you can manage yourself)?
"Your money is like a bar of soap. The more you handle it, the less you’ll have." - Gene Fama
Madboggle
Posts: 13
Joined: Fri Jul 03, 2020 3:44 pm

Re: Why do people end up with 10-15 funds in their 401k?

Post by Madboggle »

My employer/401k plan provided a free portfolio analysis call every year. He used to ask me bunch of questions, put me on hold and then come back with complicated analysis and suggested 10-15 funds. Prior to that I used to be in the target date portfolio. Even after the high expense ratios they had a good sales pitch as to why that doesn’t matter. They had so many hidden fees, which I didn’t even notice because nothing hits my checking account and they automatically sell shares to cover the fees. In short they made things complicated and hid lot of important stuff (fees) and made me believe they were working in my best interests.
Bobby206
Posts: 478
Joined: Fri Oct 05, 2018 4:01 pm

Re: Why do people end up with 10-15 funds in their 401k?

Post by Bobby206 »

retiredjg wrote: Mon Sep 07, 2020 8:28 am There may be many answers to this. One is they think they are diversifying by having a lot of funds.
This for sure. I know that's how my initial 401k allocation happened. The "advisor" for our 401k walked us through a sheet about risk/reward, in a group meeting, and we literally picked our funds based on that. It's pretty funny in hindsight.
User avatar
bertilak
Posts: 7843
Joined: Tue Aug 02, 2011 5:23 pm
Location: East of the Pecos, West of the Mississippi

Re: Why do people end up with 10-15 funds in their 401k?

Post by bertilak »

burritoLover wrote: Mon Sep 07, 2020 10:20 am Does Vanguard's PAS do the same thing (load up on unnecessary funds to make it appear it is not something you can manage yourself)?
I don't know about PAS but early on I worked with a Vanguard advisor to come up with a plan. The plan was expressed to me by breaking the investments into several asset classes, including Large Cap, Mid Cap, Small Cap, Growth, Value. By an AMAZING coincidence Vanguard's Total Stock Market fund (VTSAX) had that exact breakdown, although they didn't make that clear.

They obfuscated this by listing the dollar amounts in each of the above classes and listing VTSAX as the fund providing that particular class and amount. One had to read carefully to see that the plan ultimately called out for a single holding of VTSAX, plus other funds for international and bond.

My point: I do believe they put their proposal together this way if not "to make it appear it is not something you can manage yourself" then at least to inflate the value of their analysis by making it seem they carefully thought out the breakdown between large, mid, and small cap, etc. to optimize for MY particular case.
May neither drought nor rain nor blizzard disturb the joy juice in your gizzard. -- Squire Omar Barker (aka S.O.B.), the Cowboy Poet
Topic Author
burritoLover
Posts: 328
Joined: Sun Jul 05, 2020 12:13 pm

Re: Why do people end up with 10-15 funds in their 401k?

Post by burritoLover »

bertilak wrote: Mon Sep 07, 2020 10:47 am
burritoLover wrote: Mon Sep 07, 2020 10:20 am Does Vanguard's PAS do the same thing (load up on unnecessary funds to make it appear it is not something you can manage yourself)?
I don't know about PAS but early on I worked with a Vanguard advisor to come up with a plan. The plan was expressed to me by breaking the investments into several asset classes, including Large Cap, Mid Cap, Small Cap, Growth, Value. By an AMAZING coincidence Vanguard's Total Stock Market fund (VTSAX) had that exact breakdown, although they didn't make that clear.

They obfuscated this by listing the dollar amounts in each of the above classes and listing VTSAX as the fund providing that particular class and amount. One had to read carefully to see that the plan ultimately called out for a single holding of VTSAX, plus other funds for international and bond.

My point: I do believe they put their proposal together this way if not "to make it appear it is not something you can manage yourself" then at least to inflate the value of their analysis by making it seem they carefully thought out the breakdown between large, mid, and small cap, etc. to optimize for MY particular case.
Interesting - I thought Vanguard would be different.
"Your money is like a bar of soap. The more you handle it, the less you’ll have." - Gene Fama
User avatar
bertilak
Posts: 7843
Joined: Tue Aug 02, 2011 5:23 pm
Location: East of the Pecos, West of the Mississippi

Re: Why do people end up with 10-15 funds in their 401k?

Post by bertilak »

burritoLover wrote: Mon Sep 07, 2020 10:51 am
bertilak wrote: Mon Sep 07, 2020 10:47 am
burritoLover wrote: Mon Sep 07, 2020 10:20 am Does Vanguard's PAS do the same thing (load up on unnecessary funds to make it appear it is not something you can manage yourself)?
I don't know about PAS but early on I worked with a Vanguard advisor to come up with a plan. The plan was expressed to me by breaking the investments into several asset classes, including Large Cap, Mid Cap, Small Cap, Growth, Value. By an AMAZING coincidence Vanguard's Total Stock Market fund (VTSAX) had that exact breakdown, although they didn't make that clear.

They obfuscated this by listing the dollar amounts in each of the above classes and listing VTSAX as the fund providing that particular class and amount. One had to read carefully to see that the plan ultimately called out for a single holding of VTSAX, plus other funds for international and bond.

My point: I do believe they put their proposal together this way if not "to make it appear it is not something you can manage yourself" then at least to inflate the value of their analysis by making it seem they carefully thought out the breakdown between large, mid, and small cap, etc. to optimize for MY particular case.
Interesting - I thought Vanguard would be different.
If I was clever enough at the time I might have asked them when and how I would rebalance between large-cap and small-cap.
May neither drought nor rain nor blizzard disturb the joy juice in your gizzard. -- Squire Omar Barker (aka S.O.B.), the Cowboy Poet
User avatar
vineviz
Posts: 7827
Joined: Tue May 15, 2018 1:55 pm

Re: Why do people end up with 10-15 funds in their 401k?

Post by vineviz »

Dottie57 wrote: Mon Sep 07, 2020 10:15 am I know someone who puts equal amounts in each fund in her 403b.
This is incredibly common, unfortunately.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch
Tdubs
Posts: 1102
Joined: Tue Apr 24, 2018 7:50 pm

Re: Why do people end up with 10-15 funds in their 401k?

Post by Tdubs »

The standard advisor recipe is about 12 funds. Enough to convince a novice they are getting their money's worth from an advisor and complicated enough to leave them too confused and dependent to break away.
User avatar
bertilak
Posts: 7843
Joined: Tue Aug 02, 2011 5:23 pm
Location: East of the Pecos, West of the Mississippi

Re: Why do people end up with 10-15 funds in their 401k?

Post by bertilak »

Tdubs wrote: Mon Sep 07, 2020 11:43 am The standard advisor recipe is about 12 funds. Enough to convince a novice they are getting their money's worth from an advisor and complicated enough to leave them too confused and dependent to break away.
TA-DA!

I wonder if that is something they actually teach new recruits or if they expect the recruits to be smart enough to pick it up informally.
May neither drought nor rain nor blizzard disturb the joy juice in your gizzard. -- Squire Omar Barker (aka S.O.B.), the Cowboy Poet
123
Posts: 6410
Joined: Fri Oct 12, 2012 3:55 pm

Re: Why do people end up with 10-15 funds in their 401k?

Post by 123 »

vineviz wrote: Mon Sep 07, 2020 11:33 am
Dottie57 wrote: Mon Sep 07, 2020 10:15 am I know someone who puts equal amounts in each fund in her 403b.
This is incredibly common, unfortunately.
Indeed where I work I have heard a number of co-workers use this "strategy" for their 401Ks. The employer provides annual meetings with an adviser/consultant and these co-workers seem to always attend those but still do it this way. I am so tempted to discuss things with them but it seems useless, when they discuss their periodic statements a common refrain is "Sometimes I don't know why I bother, every meeting and every statement just gets me more confused". They seem to actively resist understanding so they can complain about it. Maybe some day they'll think about it and a light will go on...
The closest helping hand is at the end of your own arm.
sailaway
Posts: 2223
Joined: Fri May 12, 2017 1:11 pm

Re: Why do people end up with 10-15 funds in their 401k?

Post by sailaway »

retiredjg wrote: Mon Sep 07, 2020 8:28 am There may be many answers to this. One is they think they are diversifying by having a lot of funds.
This is my story. As a new investor, "diversify" and "buy and hold" were the only things that made any sense to me. So I bought lots of different things. Once I had extra money, I signed up for an investment brokerage that let me buy lots of different stocks as a basket. It didn't even occur to me that I could just continue to buy funds like I had in my retirement account. I just bought something new every time to add more diversity.

Turns out I did OK, probably my worst choice was to start out with target date funds with relatively high fees, which still weren't egregiously high. But that was just luck, it easily could have gone the other way if my arbitrary choices had been different.
User avatar
Taylor Larimore
Advisory Board
Posts: 29960
Joined: Tue Feb 27, 2007 8:09 pm
Location: Miami FL

The Three-Fund Portfolio

Post by Taylor Larimore »

burritoLover wrote: Mon Sep 07, 2020 10:20 am Does Vanguard's PAS do the same thing (load up on unnecessary funds to make it appear it is not something you can manage yourself)?
burritoLover:

I have a friend who is trustee for several large family trusts that uses Vanguard PAS (Personal Advisory Services). Each trust contain only The Three-Fund Portfolio.

Best wishes.
Taylor
Jack Bogle's Words of Wisdom: "There may be better investment strategies than owning just three broad-based index funds but the number of strategies that are worse is infinite."
"Simplicity is the master key to financial success." -- Jack Bogle
User avatar
bertilak
Posts: 7843
Joined: Tue Aug 02, 2011 5:23 pm
Location: East of the Pecos, West of the Mississippi

Re: The Three-Fund Portfolio

Post by bertilak »

Taylor Larimore wrote: Mon Sep 07, 2020 11:54 am
burritoLover wrote: Mon Sep 07, 2020 10:20 am Does Vanguard's PAS do the same thing (load up on unnecessary funds to make it appear it is not something you can manage yourself)?
burritoLover:

I have a friend who is trustee for several large family trusts that uses Vanguard PAS (Personal Advisory Services). Each trust contain only The Three-Fund Portfolio.

Best wishes.
Taylor
Jack Bogle's Words of Wisdom: "There may be better investment strategies than owning just three broad-based index funds but the number of strategies that are worse is infinite."
Very Interesting!

Is that a directive given to each PAS advisor or did they come up with it on their own? I'm surprised they don't have at least 4 funds, the thee-fund plus international bonds.
May neither drought nor rain nor blizzard disturb the joy juice in your gizzard. -- Squire Omar Barker (aka S.O.B.), the Cowboy Poet
Topic Author
burritoLover
Posts: 328
Joined: Sun Jul 05, 2020 12:13 pm

Re: The Three-Fund Portfolio

Post by burritoLover »

Taylor Larimore wrote: Mon Sep 07, 2020 11:54 am
burritoLover wrote: Mon Sep 07, 2020 10:20 am Does Vanguard's PAS do the same thing (load up on unnecessary funds to make it appear it is not something you can manage yourself)?
burritoLover:

I have a friend who is trustee for several large family trusts that uses Vanguard PAS (Personal Advisory Services). Each trust contain only The Three-Fund Portfolio.

Best wishes.
Taylor
Interesting - thanks!
"Your money is like a bar of soap. The more you handle it, the less you’ll have." - Gene Fama
JBTX
Posts: 6966
Joined: Wed Jul 26, 2017 12:46 pm

Re: Why do people end up with 10-15 funds in their 401k?

Post by JBTX »

In my case I have a lot more than 3 funds, but they are spread over 8-10 retirement accounts between DW and I. How did I get there? I may pick a fund that represents a "tilt", or has a perceived more favorable risk reward characteristic than a straight up total market index fund. In some cases you develop an attachment to this fund or that one.

I don't profess that this approach is better than a more simplified approach, but I haven't had enough compelling reasons to dump them all and go with a simpler approach. I've mostly culled the active funds that have higher fees.

Having said that in our 401k plans if a institutional share class target date fund exists I stick most of the funds there.
randomguy
Posts: 9205
Joined: Wed Sep 17, 2014 9:00 am

Re: Why do people end up with 10-15 funds in their 401k?

Post by randomguy »

burritoLover wrote: Mon Sep 07, 2020 8:26 am It seems like new people to the forum asking for a portfolio review often have numerous funds in their 401ks or IRAs where the number, selection, and allocation of the funds don't make much sense. Are these some kind of robo-advisor picks or do people tend to just overload on funds cause they think more must be better?
Do man by 401(k)s even have 15 funds available? Mine always seemed to make out around 10. But how do you end up with 15+ funds
Work for company A and buy 5 funds to meet your needs (bonds, small caps, large, international,...). Quit and join company B and repeat. Then quit and join company C. And so on So after 10-15 years of working you end up with a half dozen IRAs each with 5 funds in it. Granted this isn't as big of deal as it was 20 years ago but I bet you will find that historical reasons like this account for a lot of the funds people have.

Personally I have met very, very few people who have had a financial advisor (maybe 10% max) so I really doubt that they play in a role.
randomguy
Posts: 9205
Joined: Wed Sep 17, 2014 9:00 am

Re: The Three-Fund Portfolio

Post by randomguy »

Taylor Larimore wrote: Mon Sep 07, 2020 11:54 am
Jack Bogle's Words of Wisdom: "There may be better investment strategies than owning just three broad-based index funds but the number of strategies that are worse is infinite."
There are an infinite number of better strategies. The problem of course is when picking from those 2 infinities, you odds of getting the right on is small.
User avatar
Taylor Larimore
Advisory Board
Posts: 29960
Joined: Tue Feb 27, 2007 8:09 pm
Location: Miami FL

Re: The Three-Fund Portfolio

Post by Taylor Larimore »

bertilak wrote: Mon Sep 07, 2020 12:13 pm
Taylor Larimore wrote: Mon Sep 07, 2020 11:54 am
burritoLover wrote: Mon Sep 07, 2020 10:20 am Does Vanguard's PAS do the same thing (load up on unnecessary funds to make it appear it is not something you can manage yourself)?
burritoLover:

I have a friend who is trustee for several large family trusts that uses Vanguard PAS (Personal Advisory Services). Each trust contain only The Three-Fund Portfolio.

Best wishes.
Taylor
Jack Bogle's Words of Wisdom: "There may be better investment strategies than owning just three broad-based index funds but the number of strategies that are worse is infinite."
Very Interesting!

Is that a directive given to each PAS advisor or did they come up with it on their own? I'm surprised they don't have at least 4 funds, the three-fund plus international bonds.
bertilak:

I don't know the answer. My friend held the 3-fund portfolio before using PAS and was very happy with it. Perhaps that's the reason.

Taylor
Jack Bogle's Words of Wisdom "This business is all about simplicity and low cost. I'm not into all these market strategies and theories and cost-benefit analyses - all the bureaucracy that goes with business. In investing, strip all the baloney out of it, and give people what you promise."
"Simplicity is the master key to financial success." -- Jack Bogle
Actin
Posts: 115
Joined: Wed May 16, 2018 8:40 pm

Re: Why do people end up with 10-15 funds in their 401k?

Post by Actin »

I think it's a combination of the fact that most businesses have really bad fund selections and your average person has no idea what they are doing when it comes to fund selection, so they just randomly pick different funds based on names.
User avatar
abuss368
Posts: 21593
Joined: Mon Aug 03, 2009 2:33 pm
Location: Where the water is warm, the drinks are cold, and I don't know the names of the players!
Contact:

Re: Why do people end up with 10-15 funds in their 401k?

Post by abuss368 »

burritoLover wrote: Mon Sep 07, 2020 10:20 am Does Vanguard's PAS do the same thing (load up on unnecessary funds to make it appear it is not something you can manage yourself)?
I recently encouraged a family member to engage Vanguard PAS and to date it has been an incredibly positive experience. They moved everything from the mutual fund platform to the brokerage platform. Next step was converting to ETFs. The Vanguard Four Fund Portfolio is the strategy and my family could not be happier. They felt the 0.30 (although they would like to see that decline over time) was worth it.
Last edited by abuss368 on Sat Sep 26, 2020 9:53 pm, edited 1 time in total.
John C. Bogle: “Simplicity is the master key to financial success."
retiredjg
Posts: 41905
Joined: Thu Jan 10, 2008 12:56 pm

Re: Why do people end up with 10-15 funds in their 401k?

Post by retiredjg »

burritoLover wrote: Mon Sep 07, 2020 10:20 am Does Vanguard's PAS do the same thing (load up on unnecessary funds to make it appear it is not something you can manage yourself)?
I would say generally not. They tend to use 2 stock funds (US and International) but they do break the bond allocation into about 3 funds.

I think this is odd but harmless. During our recent flash crash in Feb, I think people were happy to have something that didn't budge much (the short term bonds). Maybe that's why they do it.
illumination
Posts: 862
Joined: Tue Apr 02, 2019 6:13 pm

Re: Why do people end up with 10-15 funds in their 401k?

Post by illumination »

It's hard to justify to a client that your services are worthwhile if you put them in a 3 fund portfolio. But if if you have dozens of funds and securities and it's constantly being moved around, a person thinks they couldn't possibly do it themselves.

I was helping a family member with their portfolio (when they asked) and they actually had a planner that put them in 3 terrible, active managed mutual funds that had high expense ratios. Basically it just sat there with some rebalancing on the margins year after year. It was very easy to get them to move, if they loved those funds they could own them at a place like Fidelity or Schwab and not pay their planner anything. Ultimately they left the garbage funds also (they were funds of funds, where inside the high expense ratios were other funds with high expense ratios)

That being said, I don't strictly follow a 3 fund portfolio either.
User avatar
abuss368
Posts: 21593
Joined: Mon Aug 03, 2009 2:33 pm
Location: Where the water is warm, the drinks are cold, and I don't know the names of the players!
Contact:

Re: Why do people end up with 10-15 funds in their 401k?

Post by abuss368 »

Actin wrote: Mon Sep 07, 2020 1:00 pm I think it's a combination of the fact that most businesses have really bad fund selections and your average person has no idea what they are doing when it comes to fund selection, so they just randomly pick different funds based on names.
I have seen this unfortunately so many times.
John C. Bogle: “Simplicity is the master key to financial success."
XacTactX
Posts: 66
Joined: Sat May 11, 2019 5:46 pm
Location: Southern California

Re: Why do people end up with 10-15 funds in their 401k?

Post by XacTactX »

I think the main reason is simply not having experience/knowledge about investing and thinking that "more funds = more diversification" or "I like all the funds so why not pick all of them?". I've seen this phenomenon on Reddit as well, people ask for advice about building their first portfolio and they've picked VOO, VTI, DIA, all at the same time, without understanding that DIA is going to overweight them on 30 specific companies, VOO is going to overweight them on large/mid caps, and all of that can be avoided by purchasing VTI. They don't know all of the core ideas of investing or how the core ideas fit together into a real portfolio.
SMLF | ISCF | EMGF | LendingClub | Cash
User avatar
mokaThought
Posts: 91
Joined: Tue Jan 01, 2019 7:57 pm
Location: Texas
Contact:

Re: Why do people end up with 10-15 funds in their 401k?

Post by mokaThought »

I think most everyone has nailed it here, but I'll add a case in point. I spoke to a colleague a few weeks ago who asked for some asset allocation advice. His present allocation was equal allotments to all of the non-lifecycle funds in our 401(k): stable value, total bond market, large cap (500), mid-cap, small-cap, EAFE stock, and domestic REIT. Thankfully, our 401(k) is reasonably Bogleheadish. He could have done much worse.
October: This is one of the peculiarly dangerous months to speculate in stocks in. The others are July, January, September, April, November, May, March, June, December, August, and February. —Mark Twain
Actin
Posts: 115
Joined: Wed May 16, 2018 8:40 pm

Re: Why do people end up with 10-15 funds in their 401k?

Post by Actin »

abuss368 wrote: Mon Sep 07, 2020 2:13 pm
Actin wrote: Mon Sep 07, 2020 1:00 pm I think it's a combination of the fact that most businesses have really bad fund selections and your average person has no idea what they are doing when it comes to fund selection, so they just randomly pick different funds based on names.
I have seen this unfortunately so many times.
My best friend said that when his wife was setting up her 401k at her job, the woman at HR just handed her a form and said to check the boxes of the funds she wanted. They didn't explain anything to her and she didn't know anything about investing. She just checked random ones and ended up with three different bond funds, two different international funds, and no US funds. It was easy to fix when they got help, but the entire situation was ridiculous
User avatar
abuss368
Posts: 21593
Joined: Mon Aug 03, 2009 2:33 pm
Location: Where the water is warm, the drinks are cold, and I don't know the names of the players!
Contact:

Re: Why do people end up with 10-15 funds in their 401k?

Post by abuss368 »

Actin wrote: Mon Sep 07, 2020 2:47 pm
abuss368 wrote: Mon Sep 07, 2020 2:13 pm
Actin wrote: Mon Sep 07, 2020 1:00 pm I think it's a combination of the fact that most businesses have really bad fund selections and your average person has no idea what they are doing when it comes to fund selection, so they just randomly pick different funds based on names.
I have seen this unfortunately so many times.
My best friend said that when his wife was setting up her 401k at her job, the woman at HR just handed her a form and said to check the boxes of the funds she wanted. They didn't explain anything to her and she didn't know anything about investing. She just checked random ones and ended up with three different intermediate bond funds, two different international funds, and no US funds. It was ridiculous
Yes. This has been my experience as well when interacting with HR. One needs to refrain from exposure by recommending funds. I try to bring in good advisors.
John C. Bogle: “Simplicity is the master key to financial success."
rockstar
Posts: 738
Joined: Mon Feb 03, 2020 6:51 pm

Re: Why do people end up with 10-15 funds in their 401k?

Post by rockstar »

I have 100% in a S&P 500 fund in my 401k. I did have two fund for a little bit because plans add and remove funds over time.
User avatar
abuss368
Posts: 21593
Joined: Mon Aug 03, 2009 2:33 pm
Location: Where the water is warm, the drinks are cold, and I don't know the names of the players!
Contact:

Re: Why do people end up with 10-15 funds in their 401k?

Post by abuss368 »

retiredjg wrote: Mon Sep 07, 2020 1:54 pm
burritoLover wrote: Mon Sep 07, 2020 10:20 am Does Vanguard's PAS do the same thing (load up on unnecessary funds to make it appear it is not something you can manage yourself)?
I would say generally not. They tend to use 2 stock funds (US and International) but they do break the bond allocation into about 3 funds.

I think this is odd but harmless. During our recent flash crash in Feb, I think people were happy to have something that didn't budge much (the short term bonds). Maybe that's why they do it.
My family was placed in US & International stocks and bonds. The PAS advisor said that a small allocation to Short Term TIPS at retirement is an option but may not be needed.
John C. Bogle: “Simplicity is the master key to financial success."
User avatar
abuss368
Posts: 21593
Joined: Mon Aug 03, 2009 2:33 pm
Location: Where the water is warm, the drinks are cold, and I don't know the names of the players!
Contact:

Re: Why do people end up with 10-15 funds in their 401k?

Post by abuss368 »

rockstar wrote: Mon Sep 07, 2020 2:49 pm I have 100% in a S&P 500 fund in my 401k. I did have two fund for a little bit because plans add and remove funds over time.
I did this exact strategy for a long time as the S&P 500 was the only low cost option available in our employer plan at one time. The strategy worked well. We moved the plan to Vanguard and now offer the total market funds in addition to many other choices.

If we did not move, I would have simply stayed with the S&P 500 fund.
John C. Bogle: “Simplicity is the master key to financial success."
User avatar
abuss368
Posts: 21593
Joined: Mon Aug 03, 2009 2:33 pm
Location: Where the water is warm, the drinks are cold, and I don't know the names of the players!
Contact:

Re: Why do people end up with 10-15 funds in their 401k?

Post by abuss368 »

Tdubs wrote: Mon Sep 07, 2020 11:43 am The standard advisor recipe is about 12 funds. Enough to convince a novice they are getting their money's worth from an advisor and complicated enough to leave them too confused and dependent to break away.
Unfortunately that may be correct in a lot of examples. Not sure why the complexity is needed. When my family enrolled Vanguard PAS, they were surprised that the recommendation was 4 simple funds.
John C. Bogle: “Simplicity is the master key to financial success."
rockstar
Posts: 738
Joined: Mon Feb 03, 2020 6:51 pm

Re: Why do people end up with 10-15 funds in their 401k?

Post by rockstar »

abuss368 wrote: Mon Sep 07, 2020 3:57 pm
rockstar wrote: Mon Sep 07, 2020 2:49 pm I have 100% in a S&P 500 fund in my 401k. I did have two fund for a little bit because plans add and remove funds over time.
I did this exact strategy for a long time as the S&P 500 was the only low cost option available in our employer plan at one time. The strategy worked well. We moved the plan to Vanguard and now offer the total market funds in addition to many other choices.

If we did not move, I would have simply stayed with the S&P 500 fund.
My problem is that my 401k is through Prudential. The fund options suck.
User avatar
abuss368
Posts: 21593
Joined: Mon Aug 03, 2009 2:33 pm
Location: Where the water is warm, the drinks are cold, and I don't know the names of the players!
Contact:

Re: Why do people end up with 10-15 funds in their 401k?

Post by abuss368 »

rockstar wrote: Mon Sep 07, 2020 4:03 pm
My problem is that my 401k is through Prudential. The fund options suck.
You are right. I have audited 401k plans with Prudential and unfortunately it typically leaves a lot to be desired.
John C. Bogle: “Simplicity is the master key to financial success."
User avatar
ruralavalon
Posts: 19447
Joined: Sat Feb 02, 2008 10:29 am
Location: Illinois

Re: Why do people end up with 10-15 funds in their 401k?

Post by ruralavalon »

abuss368 wrote: Mon Sep 07, 2020 3:57 pm
rockstar wrote: Mon Sep 07, 2020 2:49 pm I have 100% in a S&P 500 fund in my 401k. I did have two fund for a little bit because plans add and remove funds over time.
I did this exact strategy for a long time as the S&P 500 was the only low cost option available in our employer plan at one time. The strategy worked well. We moved the plan to Vanguard and now offer the total market funds in addition to many other choices.

If we did not move, I would have simply stayed with the S&P 500 fund.
For a long time an off-brand S&P 500 index fund, ER around 0.40%, was the only decent fund choice in my 401k, and was the only fund I used.

Eventually I did an in-service rollover to an IRA Vanguard, and got more diversified fund choices.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started
User avatar
abuss368
Posts: 21593
Joined: Mon Aug 03, 2009 2:33 pm
Location: Where the water is warm, the drinks are cold, and I don't know the names of the players!
Contact:

Re: Why do people end up with 10-15 funds in their 401k?

Post by abuss368 »

ruralavalon wrote: Mon Sep 07, 2020 5:41 pm
abuss368 wrote: Mon Sep 07, 2020 3:57 pm
rockstar wrote: Mon Sep 07, 2020 2:49 pm I have 100% in a S&P 500 fund in my 401k. I did have two fund for a little bit because plans add and remove funds over time.
I did this exact strategy for a long time as the S&P 500 was the only low cost option available in our employer plan at one time. The strategy worked well. We moved the plan to Vanguard and now offer the total market funds in addition to many other choices.

If we did not move, I would have simply stayed with the S&P 500 fund.
For a long time an off-brand S&P 500 index fund, ER around 0.40%, was the only decent fund choice in my 401k, and was the only fund I used.

Eventually I did an in-service rollover to an IRA Vanguard, and got more diversified fund choices.
An in service rollover is a nice but rare option with many plans. I audited a lot of retirement plans in a prior life and I rarely saw this as a feature in the plan document.
John C. Bogle: “Simplicity is the master key to financial success."
Ruttiger
Posts: 20
Joined: Fri Feb 28, 2020 3:50 pm

Re: Why do people end up with 10-15 funds in their 401k?

Post by Ruttiger »

My company had a Fidelity advisor come in about 15 years ago, and then gave us access to an "independent" advisor.

The Fidelity advisor basically said we should spread everything over all the funds, and he called that having "little insurance policies" that somethings would go well, and protect if a few funds were bad.

The later advisor was similar, for example I was told for my "bond" portion I should spread across all the cash/stable value funds (bond, stable value, cash, TIPS) so there were 3-4 funds right there, needed international, a mix of large, mid, small, and add that value fund (they were convinced I needed the actively managed small cap fund because they outperform they index fund, when i asked why has they index fund perform better, he looked up the returns and was perplexed).

Not sure the motivation, but they were going for diversification.

Fast forward, my company's options are boring. All vanguard. Money market, total bond, total stock market, total international, and a host of target date. Not sure exactly what it means, but these are all institutional trust funds, which appear to have lower expense ratios.

I've learned boring is good.

R.
bck63
Posts: 1317
Joined: Fri Sep 28, 2018 4:59 pm

Re: Why do people end up with 10-15 funds in their 401k?

Post by bck63 »

I have two -- FXAIX and FXNAX.
rockstar
Posts: 738
Joined: Mon Feb 03, 2020 6:51 pm

Re: Why do people end up with 10-15 funds in their 401k?

Post by rockstar »

abuss368 wrote: Mon Sep 07, 2020 5:57 pm
ruralavalon wrote: Mon Sep 07, 2020 5:41 pm
abuss368 wrote: Mon Sep 07, 2020 3:57 pm
rockstar wrote: Mon Sep 07, 2020 2:49 pm I have 100% in a S&P 500 fund in my 401k. I did have two fund for a little bit because plans add and remove funds over time.
I did this exact strategy for a long time as the S&P 500 was the only low cost option available in our employer plan at one time. The strategy worked well. We moved the plan to Vanguard and now offer the total market funds in addition to many other choices.

If we did not move, I would have simply stayed with the S&P 500 fund.
For a long time an off-brand S&P 500 index fund, ER around 0.40%, was the only decent fund choice in my 401k, and was the only fund I used.

Eventually I did an in-service rollover to an IRA Vanguard, and got more diversified fund choices.
An in service rollover is a nice but rare option with many plans. I audited a lot of retirement plans in a prior life and I rarely saw this as a feature in the plan document.
I don't see this option or the option to do a self directed account either. I had the later at another employer.
Post Reply