Looking for advice for new 401k fund choices

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gone_fishing
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Joined: Fri Jan 12, 2018 5:44 pm

Looking for advice for new 401k fund choices

Post by gone_fishing » Sat Jan 13, 2018 11:39 am

Hello everyone! New to this board and looking for a little advice on picking some funds for my 401k. I'm with a new employer and will be rolling over my old 401k into their plan. They use Fidelity and have 33 funds to pick from (see pic below). These funds are all new to me and I'm looking for a little advice on setting up my allocations.

Little bit about me. I'm 33 years old and would consider myself a moderately aggressive investor. I'm OK with risk and not the type to change investments based on the market going up/down. My 401k is currently my only IRA and it's not something I plan to dip into until retirement. These are long term savings.

I have been researching index funds and I'm definitely interested in them. My previous 401k was in a blended target date fund (which would be around 2045 give or take). With my new 401k I'm not interested in this type of fund and want to focus more on index funds. I'm thinking a 90/10 stocks/bonds split. I would like some mix of stock funds (at least 2, maybe 3). Haven't narrowed down allocation % yet (will once I choose funds).

Stocks:
These are the index funds that got my attention:
1. Fidelity 500 Index Fund - Premium Class (Large Blend)
2. Fidelity Total Market Index Fund - Premium Class (Large Blend)
3. Fidelity Extended Market Index Fund (Mid-Cap Blend)
4. Foreign?

#1 and #2 look almost the same. Both have had similar returns and both have a 0.035% expense ratio. Any reason to pick one over the other? Any advantage to using both (say 50/50)?

I didn't list a foreign fund as I'm still not sure about this category. Thoughts on long term investments in foreign? Skip it or put a small percentage into (10%)? If so which fund? I know that is a question that could be it's own topic. Just curious what others are doing.

Bonds:
As far as bonds go I would like to only utilize one. Any recommendations?

I'm sure I'll think of some more questions but appreciate any feedback to get me started.

Thanks!

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ruralavalon
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Joined: Sat Feb 02, 2008 10:29 am
Location: Illinois

Re: Looking for advice for new 401k fund choices

Post by ruralavalon » Sat Jan 13, 2018 12:04 pm

Welcome to the forum :) .

Fidelity 500 Index Fund Premium Class ER 0.035% covers 81% of the U.S. stock market, stocks of larger companies.

Fidelity Extended Market Index Fund Premium Class ER 0.07% covers 19% of the U.S. stock market, stocks of smaller companies.

Fidelity Total Market Index Fund Premium Class ER 0.035% covers all of the readily investable U.S. stock market, stocks of both larger and smaller companies, and has a low expense ratio.

I suggest using the total market fund itself to cover U.S. stocks.

For international stocks I suggest using Fidelity Global Ex-U.S. Index Fund Premium Class ER 0.10%. That fund covers both developed and emerging markets, and has a low expense ratio.

I suggest international stocks at about 20-30% of total stocks. Please see the Vanguard paper "Considerations for Investing in Non-U.S Equities", pp. 5-6. Historically 20% of stocks in international stocks would have captured about 85% of the maximum diversification benefit, and 30% would have captured about 99% of the maximum diversification benefit.

Be sure to use a bond allocation. Baird Core Plus Bond Fund ER 0.55% would be my suggestion. That is a good actively managed, intermediate-term, investment grade bond fund with a moderate expense ratio.

If you have any questions just ask.

I hope that this helps.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started

pkcrafter
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Re: Looking for advice for new 401k fund choices

Post by pkcrafter » Sat Jan 13, 2018 12:35 pm

Total stock market is probably your best choice for equity. Holding the S&P500 index and extended market only makes sense if you wanted to overweight mid caps.

For bonds, you don't have any clear best choices. Baird is a reasonable choice although it's overall rating is BBB. It lost 2% in 2008 whereas Vanguard's Total Bond gained 5%. But Baird outperformed Vanguard's fund over 5 and 10 years. A little more risk, a little more return. Your other choices don't look as good and are more expensive.

Paul
When times are good, investors tend to forget about risk and focus on opportunity. When times are bad, investors tend to forget about opportunity and focus on risk.

gone_fishing
Posts: 2
Joined: Fri Jan 12, 2018 5:44 pm

Re: Looking for advice for new 401k fund choices

Post by gone_fishing » Sat Jan 13, 2018 6:11 pm

Thank you ruralavalon and pkcrafter for the feedback. I think I'll focus on the Fidelity Total Market Index Fund and skip the 500 and extended index funds.

I was able to find the Vanguard paper you mentioned. I'll read that before making my decision on international stocks.

Potential allocations:
10% Baird Core Plus Bond Fund Class Investor: https://fundresearch.fidelity.com/mutua ... /057071870
20%-30% Fidelity Global ex U.S. Index Fund - Premium Class: https://fundresearch.fidelity.com/mutua ... /316146141
60%-70% Fidelity Total Market Index Fund - Premium Class: https://fundresearch.fidelity.com/mutua ... /315911800

Thanks!

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