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My 401K options changed from several to a few options, some that I can't find. Should I be worried about my options?

We used to have American Funds (INV Co of America, New Prespective) as well some index funds. Options gradually changed to many Target Date funds, SP 500 index, Stable value and some replacement funds that didn't have a ticker symbol (US Equity, Global Equity, and an Emerging Mkts fund), as well as the LMC common and ESOP funds. I have moved 75% of my assets into the Self Managed option, invested in the 4 or 5 well perfroming funds as well as equities (Boeing and P&G for now). I am planning to move more. My plan contributions are going 100% into LMC common stock fund. Was I doing the correct thing in trying retain some control and flexibility?

Mar 31, 2014 by Walter from Liverpool, NY in  |  Flag
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Many fund administrators use proprietary funds for 401k plans. These funds are often a different share class of the same funds that do trade online and have tickers, but it can often be difficult to match them up. It is very difficult not having a ticker for those of us who like to keep track of our accounts in Quicken, etc.

As for whether you are "doing the right thing" it is hard to know. You have a self managed option, which is not all that common. Taking advantage of this, if you know what you are doing, opens up a universe of options - which is great. You can use low cost index funds, low cost ETF's - and yes, own some individual equities if you wish. Again, if you know what you are doing, and if you build a diversified portfolio with an asset allocation that is suitable for your age and retirement goals, then there is nothing wrong with what you are doing.

If you are unsure, you can review your selections with a fee only financial planner. Any planner who works for an hourly fee would be happy to look over your portfolio and make suggestions. I think it would be worth the minimal investment, just to make sure you are on the right track.

Comment   |  Flag   |  Mar 31, 2014 from Bridgewater, NJ

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Rich Winer Level 20

Sounds like you are doing the right thing. I would continue to do the research into your various investment options, track you investments closely and make changes as necessary. I am not a big fan of target date funds. If you know what you are doing with your investments, I think you will do better self-directing your investments. Also, if you want a second option, you can always pay a financial advisor for an hour or two of his time to review your investment options, holdings, etc. and provide suggestions.

1 Comment   |  Flag   |  Mar 31, 2014 from Woodland Hills, CA
Rich Winer

In response to Travis' explanation of why he likes Target Date Funds, I want to address why I don't. By design, target date funds are allocated more aggressively in the early years and more conservatively as you get closer to retirement. In theory and in a perfect world, that makes a lot of sense. In reality, it can be a disaster due to economic events that must be considered in your asset allocation. Suppose you put money in a target date fund in 2007 and were 10 years away from retirement. You would have immediately lost 20-40% of your money in the 2008 bear market and needed a number of years to make up your losses. Unfortunately, because you are getting closer to retirement and the target date, the allocation of your target date fund would be getting more conservative, adding more money each year to your bond allocation... at the exact time when the Federal Reserve has announced that it will be tapering its stimulus program and eventually raising interest rates. That economic event hurt bonds last year and will likely hurt bond returns over the next few years. So last year, instead of having more money exposed to stocks at a time when stocks did extremely well, at four years away from retirement, more of you money would have been allocated to bonds, which lost money last year. While this is an extreme example, it is a real world example based on real world events and expectations of what is likely to happen in the future. If you're looking for a good all-weather fund, I much prefer balanced or asset allocation funds which maintain a static allocation regardless of market conditions. I think you will find their returns and how they respond to economic events more stable and predictable.

Flag |  Apr 01, 2014 near Woodland Hills, CA

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Walter,

James K is right. You should find someone to review your plan investment options to determine if they are adequate. If not then they can help you select the proper investments using the self-managed option.

There is a trend these days among plan sponsors to reduce the number of plan investment options. Studies show that when the typical participant is faced with many plan options they become overwhelmed and make poor investment decisions.

If you sponsor is doing their job they will have made very low cost investment options available to you in the fund line up. And give you the right type of investments so you have the ability to construct a diversified portfolio. Best guess on my part is that you can use the available plan investment options to fill in the core investment options in a well-diversified portfolio. If you want to diversify further, for example real estate or commodities or emerging markets, then you can use the self-directed option for that.

My best advice to you is to be sure you are diversified. Do not put too many eggs in the Lockheed Martin basket. Do not concentrate your retirement investments in one industry. When you say you have ‘well-performing funds’ it may be they are all well performing only because they all own the same stocks. If one fund goes down they’ll all go down.

Again, best to get some help. Ask your Human Resources department if they have made arrangements for employees to speak with an investment professional. Better run plans will offer this option. If not then reach out to a fee-only planner to help you design a portfolio that is right for your personal situation.

Hope this helps.

1 Comment   |  Flag   |  Mar 31, 2014 from Woodbridge, VA
James D. Kinney, CFP®

Past performance is really a rotten way to choose a mutual fund, when you study historical performance over a long period of time. Yes, or they are performing well because they contain stocks period. Stocks have been going nowhere but up for years now, but that could come to an end tomorrow. So a stock fund may be doing great, but what will happen to it if the stock market falls by 25%? This is why diversifying beyond stocks is important, particularly for those who are nearing retirement and cannot afford a large drawdown in account value.

Flag |  Mar 31, 2014 near Bridgewater, NJ

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The advantage to the target date fund is that you can invest with confidence and not have to constantly keep up on the investments. They are managed by people who reallocate the investment in many sectors and toggle down the risk as you near retirement. The advantages to doing this are diversity, proper risk allocation, and it prevents you from trying your hand at market timing which can be a rocky road. (It's human nature to buy high and sell low)

I first would find a risk tolerance questionnaire and figure out where you are, then I would speak with an advisor on what that risk level diversification would look like. Many times, I advise people to put half in the target date and half in your own allocation and have fun with it... see if you can beat out the fund managers over time!

Comment   |  Flag   |  Apr 01, 2014 from Indianapolis, IN

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