My wife has accumulated a significant amount of cash in her 403b plan. It is through fidelity, i.e., she can only choose from the funds available via her employer's plan. Calling the Fidelity reps is useless. Their response is "select the 2040 fund based on retirement age and leave it all there." I can't help but think it could be better diversified. How does one go about choosing where to put the money? There are literally a hundred or more funds available.

Anyone have suggestions on where to start?

 

Here's a great resource for you: http://www.bogleheads.org/wiki/Main_Page

Here's the short of it, in case you don't want to read the entire website. The most important part of investing is to have a diversified (stocks and bonds) portfolio that doesn't have crazy fees. The best way to accomplish this is by buying an index fund that follows the entire stock or bond market. This way you're guaranteed the average returns and you no longer have the risk of one or a few companies going bankrupt or even one industry doing bad for a few years.

The reason why you want to stay away from the actively managed funds are the fees. Guess what? That active management costs money. They have employees. They have computers. They have buildings, etc. All that money comes out of the fund. You would expect that half of the funds do better than the average and half do worse, right? Well, not exactly. The funds get their fees first. In any given year, only 37% of the actively managed funds will beat the average. That's because on average, their fees are 1.5%. That's 1.5% less money that you get from the returns because of the fees they charge. Also, it's really difficult to consistently beat the market. Over a 10-year period, less than 10% of the actively managed funds will beat the market. Why not just take the guaranteed average?

Chances are that your options are limited with Fidelity, they certainly were with every company that managed my 401k. I never had the option to buy indexed funds with that money. If you're in the same boat, then you have to do the next best thing. Buy a fund that covers a large part of the overall market (to reduce risk) that has the lowest management fees (sometimes referred to as expense ratio). If you post the specific funds that are available, I'll tell you which one I would pick. The target retirement funds may not be a bad idea...

 

Avoid US government bonds of all types, make sure to have some non USD exposure in either the form of diversified basket of foreign net creditor nation stocks and/or gold. The target retirement date fund is already diversified within itself.

 

Well, I pulled up the options in terms of what funds are available to select from. There are MANY. I guess this is why they set up the general mix funds, for people like us who really aren't sure what we are looking at! I will start reading your link clawhammer and try to determine which funds have the least associated fees.

READY MIX
Blended Investments*
FID FREEDOM K INCOME
FID Freedom K 2000-22055 funds based on retirement age

CORE INVESTMENT OPTIONS
Stock Investments
Large Cap
FID DIVIDEND GR K
FID EQUITY INCOME K
SPTN 500 INDEX INST
FID GROWTH CO K

Mid cap:
FID SMALL CAP STOCK
FID MID CAP STOCK K
FID LOW PRICED STK K
FID DIVERSIFD INTL K

Blended Investments*
Large Cap
FID BALANCED K

Bond Investments
Income
FID INVST GR BD
FID HIGH INCOME

EXPANDED INVESTMENT OPTIONS:
Stock Investments
Large Cap
FID TREND
FID SEL CONS STAPLES
FID SEL RETAILING
FID SEL LEISURE
FID FOCUSED STOCK
FID LARGE CAP STOCK
FID FOUR IN ONE IDX
FID MEGA CAP STOCK
FID FIFTY
FID SEL INDUST EQUIP
FID SEL INDUSTRIALS
FID SEL CONS DISCR
FID STKSEL LGCAP VAL
FID LARGE CAP GROWTH
FID BLUE CHIP VALUE
FID NASDAQ COMP INDX
FID LC CORE ENH INDX
FID LC VAL ENH INDX
FID LC GRO ENH INDX
FID NEW MILLEN
FID 130/30 LG CAP
FID DISCIPLND EQ K
FID CONTRAFUND K
FID CAP APPREC K
FID BLUE CHIP GR K
FID EQ DIV INCOME K
FID VALUE DISCOV K
FID STK SEL ALL CP K
FID OTC K
FID INDEPENDENCE K
FID GROWTH DISC K
FID GROWTH & INC K
FID FUND K
FID EXPORT & MULTI K
FID MAGELLAN K
SA CORE MULTI MGR
SA GROWTH MULTI MGR
SA VALUE MULTI MGR
SPTN TOT MKT IDX ADV

Mid-Cap
FID SEL AIR TRANSPRT
FID SEL DEFENSE
FID SEL CHEMICALS
FID SEL IT SERVICES
FID SEL AUTOMOTIVE
FID SEL CONSTR/HOUSE
FID SEL TRANSPORT
FID SEL ENV ALT ENGY
FID MID CAP VALUE
FID MID CAP GROWTH
FID MID CAP ENH INDX
FID LEVERGD CO STK K
FID VALUE K
FID VALUE STRAT K
FID GROWTH STRAT K
SPTN MID CAP IDX ADV
SPTN EXT MKT IDX ADV
FID STK SEL MID CAP

Small Cap
FID SM CAP DISCOVERY
FID STK SEL SM CAP
FID SMALL CAP GROWTH
FID SMALL CAP VALUE
FID SM CAP ENH INDX
SPTN SM CAP IDX ADV
SA SMID MULTI MGR

International
FID EUROPE
FID PACIFIC BASIN
FID CANADA
FID WORLDWIDE
FID INTL CAP APPREC
FID EUROPE CAP APP
FID NORDIC
FID LATIN AMERICA
FID JAPAN
FID EMERGING ASIA
FID CHINA REGION
FID JAPAN SMALL CO
FID INTL SMALL CAP
FID INTL SM CAP OPP
FID INTL VALUE
FID TOTAL INTL EQ
FID INTL GROWTH
FID EMEA
FID INTL ENH INDEX
FID OVERSEAS K
FID EMERGING MKTS K
FID INTL DISCOVERY K
SPTN EM MKTS IDX ADV
SPTN GLB XUS IDX ADV
FID EMERG MKTS DISC
FID TOTAL EMERG MKTS
SPTN INTL INDEX ADV
FID GLOBAL EQ INCOME

Specialty
FID SEL COMPUTERS
FID SEL ELECTRONICS
FID SEL SOFTWARE
FID SEL GOLD
FID SEL BIOTECH
FID SEL ENERGY SVCS
FID SEL INSURANCE
FID SEL ENERGY
FID SEL HEALTHCARE
FID SEL TECHNOLOGY
FID SEL UTILITIES
FID SEL FINANCIAL
FID SEL BROKERAGE
FID SEL TELECOMM
FID SEL CONSUMER FIN
FID REAL ESTATE INVS
FID TELECOM & UTIL
FID SEL MED EQ & SYS
FID SEL MULTIMEDIA
FID SEL MEDICAL DEL
FID SEL BANKING
FID SEL MATERIALS
FID SEL NATURAL GAS
FID SEL NATURAL RES
FID SEL COMM EQUIP
FID SEL PHARMACEUTCL
FID REAL ESTATE INC
FID SEL WIRELESS
FID INTL REAL ESTATE
FID GLB COMDTY STK
SPTN REAL ES IDX ADV
SA INTL MULTI MGR
SA EMERGING MKTS FOF

Blended Investments*
Specialty
FID ASSET MGR 50%

Large Cap
FID ASSET MGR 85%
FID STRAT DIV & INC

Other
FID CONVERTIBLE SEC
FID ASSET MGR 70%
FID ASSET MGR 20%
FID GLOBAL BALANCED
FID STRAT REAL RET
FID ASSET MGR 30%
FID ASSET MGR 40%
FID ASSET MGR 60%
FID GLOBAL STRAT
FID PURITAN K

Bond Investments
Income
FID GNMA
FID INTERMED BOND
FID CAPITAL & INCOME
FID MORTGAGE SEC
FIDELITY GOVT INCOME
FID NEW MARKETS INC
FID STRATEGIC INCOME
FID SHORT TERM BOND
FID INTM GOVT INCOME
FID INST SH INT GOVT
FID INFLAT PROT BOND
FID ULTRASHORT BOND
FID FLOAT RT HI INC
FID TOTAL BOND
FID FOCUSED HIGH INC
FID CORPORATE BOND
FID CONSV INC BD
FID GLB HIGH INCOME
SPTN US BOND IDX ADV
SPTN ST TR IDX ADV
SPTN INT TR IDX ADV
SPTN LT TR IDX ADV
SPTN INFL PR IDX ADV
FID INTL BOND
FID GLOBAL BOND
SA CORE INCOME MULTI
SA INCOME OPPTY FOF

Short-Term Investments
FID US GOVT RES
FID CASH RESRVE
FID SEL MONEY MARKET
FID US TREA MM
FID MONEY MARKET
FID GOVT MMKT
FID RET GOVT MM

 

If you know a thing or two about the markets, put money where you are the most well versed/confident in. Then choose a fund accordingly, and then look at it's allocations to decide if it's the right investment for you.

The biotech fund had me intrigued because I love following biotech. But I'd want to see what it's allocation is to decide if it follows what I follow. Etc.

There is no one strategy that anyone can tell you would work best. Everyone invests differently.

Also, make sure to diversify. Ie Intl, large cap, small cap, etc. and allocate based on age. I'm young so I'd keep very little in blue chip large cap, and would have more in more risky investments.

 

I'm actually quite jealous of your 401k options. Here's what I would do. Choose your age in bonds. I.E., if you're 30, put 30% of your investments in bonds. All your bonds should go into SPTN US BOND IDX ADV. The fees for this fund are 0.17%, which is good. This fund includes every single bond that is traded on the market. You will be well diversified.

Next, you just have to split your stock investments (the remaining 70% if you're 30) between US and International. I do 66% US, 34% International. The US stocks should go into SPTN TOT MKT IDX ADV (fee of 0.07%) and your International stocks should go into SPTN INTL INDEX ADV (fee of 0.17%). The US index fund will cover every single stock Fidelity can trade in the US and the International fund will cover every single international stock Fidelity can trade. Once again, you will be as diversified as possible while keeping your expenses to the absolute minimum.

Hope this helps. Let me know if you have questions.

 

Everyone's situation is different. I also have a Fidelity managed 401k. I have significantly less options. This year, as I look to some financial chances in my life, I thought about working with an independent advisor to assess my situation looking forward to retirement. I'm 44 now and hoping to have the choice available to me at 60. While I thought I was doing well, I really didn't know what things held for me. So I made some calls and have built a relationship with an advisor that I trust. She makes no money off of what I do or which investments I decide are right for me. I pay a fee for services, period. I never followed the markets much, but thought I made rational, solid financial decisions.

What I found out is that a 'fund' in XXX is only required to have a certain % of stocks in that fund that are XXX. In addition, the makeup of asset classes within the fund can vary. So, while you may have biotech and growth funds only, they may overlap on 50, 60 or even a higher percentage of what is in each fund. Your risk profile across all of your funds may not be what you think it is. It takes diving deeper into the asset classes themselves.

Based on discussions with my advisor, my risk tolerance (in interviews and surveys its pretty low, but my actions and historical investing say otherwise - go figure!) and goals, she has reset my 401k to match. While its been less than a year, I'm very happy with the results.

Side note - I guess what got me triggered was reading the Millionaire Next Door. While its a bit dated in its stories, the premises still seen correct. People (in general) spend hours upon hours of their time researching and shopping, looking to save $500 or so on a car. People (in general) spend dollars on many things they don't know about when they need those services (the plumber, electrician, doctor, lawyer, etc...), but few (in general) spend the money necessary for sound financial advice, which many people know little about.

I'm not a financial advisor obviously, and make no money if you seek one out, but it has been enlightening at the least to understand the issues and have appropriate guidance.

 

I have a small 401(k) account through the University of California, provided by Fidelity; it has 220 mutual funds (including 20 which are managed by the UC, and are available only to UC employees). I have had the same problem as you. (And you're right about the reps: the stories I could tell you!)

So . . . I wrote a simple Excel ap to help me make sense of those choices. It simply looks at the historical returns of the funds you tell it to analyze and computes the correlations of monthly returns; the lower the correlations of returns, the greater the diversification benefit.

You can download a free copy at http://www.portfolio-correlation-pro.com/, but it handles only 10 securities at a time. You can PM me about a version that will handle up to 120 securities at a time.

 

I second the comment from Clawhammer about fees. Fees are the devil in the details. I have a small Roth I have kind of orphaned in a dog of a Putnam fund. It only has $2500 in it so it is not high on my radar. It had a 2% back end load unless the money sits for at least five years then drops to zero and that has passed so I can move the money out.

But since I have put the money in this fund, Putnam merged several and changed the fee structure. Looking over the prospectus, they had examples of the front end loads, management fees, and back end loads. For someone putting money in, averaging a 6% return, and then withdrawing at 5 years, total fees were over 30% of the return for the period. You would get gouged if the fund turned out to be a dog and had to withdraw.

I have access to a few different funds through my employer. Some by Fidelity,Janus, T Rowe Price and a few others. And then some of those targeted retirement date funds run by the employer that do a mix of stocks and bonds based on your desired retirement date. The difference is the general mix of funds have annual expenses of from 1.05% to 1.25% annually. The targeted date funds run by my employer (which have rates of return comparable to the "name brand" funds) have annual expense rates of less than .25%. The returns are similar historically, but are more passively managed and have much lower fees because of it.

If you do the calculations over a ten to fifteen year period, if the rates of return are similar, the difference in balance becomes huge due to the reduction in fees alone. A half a percent to full percent difference per year on your money adds up quickly over time.