401(k) and Roth Fund Selection Advice

[Cubswin]

My goal for 2007 year is to max out my Roth and 401(k). Im currently 28 and am aiming to retire at 59.5. My employer offers a match up to 4%. Here are my 401(k) fund choices:

Large Cap

DOMINI SOCIAL EQUITY (DSEFX)

FID BLUE CHIP GROWTH (FBGRX)

SPARTAN US EQ INDEX (FUSEX)

VK GROWTH & INCOME A (ACGIX)



Small Cap

FID SMALL CAP STOCK (FSLCX)

LM US SM CP VL INST (LUSIX)



International

FID DIVERSIFIED INTL (FDIVX)



Blended Investments

FID FREEDOM 2000 (FFFBX)

FID FREEDOM 2010 (FFFCX)

FID FREEDOM 2020 (FFFDX)

FID FREEDOM 2030 (FFFEX)

FID FREEDOM 2040 (FFFFX)

FID FREEDOM INCOME (FFFAX)


Bond Investments

PIMCO TOT RETURN ADM (PTRAX)



Short-Term Investments

FIDELITY RETIRE MMKT (FRTXX)


With my 401(k) I was thinking of dividing it up like this:

50% - SPARTAN US EQ INDEX (FUSEX) (.17 expense ratio)
25% - FID DIVERSIFIED INTL (FDIVX) (1.06 expense ratio)
25% - FID FREEDOM 2040 (FFFFX) (.76 expense ratio)

With my Roth I was thinking of doing some research and picking one or two stocks. I hear Party Gaming will make me rich! [img]/images/graemlins/wink.gif[/img]

Does it sound like im on the right track with my Roth and 401(k)? Any advice, critism, comments would be greatly appreciated. Thanks in advance!

[ayamaguc]

I don't like this.

First, I think you should choose whether you're going to be involved or not. If you're not, put 100% in the the Freedom 2040 fund, make sure you contribute at least to the point where you exhaust your match, contribute as much as you can every year, and walk away. Enjoy life. Play poker. Whatever.

These time-goal funds are collections of other funds. You're paying someone to perform allocation for you. B/c the money probably only goes into Fidelity funds, you get a decent expense ratio (but can't choose best in category or whatever).

As it is, I don't think they do a good job. Check out FFFFX on Morningstar. The top 4 holdings are a large blend fund, a large value fund, a large growth fund, and another large blend fund. And then you're looking to buy the S&P. Are these things really different from each other? What's the point? Shouldn't the manager be picking the best fund for large caps and putting all the money there? That's what they get paid for right?

If you're going to be involved, then allocation is the first thing you've got to get a handle on. Not stockpicking. Find the best options across categories, then figure out how to allocate.

So you need smallcap, international, and bond exposure. No money markets as you'll be contributing regularly (dollar-cost averaging) from your paycheck UNLESS you have some grand feel about valuations where you want to keep cash sitting around for the right moment (say... shortly after markets opened in Sept. 2001). You probably don't need to do that. Would be nice too if you could get a quality real estate fund, midcaps, maybe a commodity or energy fund... perhaps you can bug your employer to bug Fidelity to get you some options there.

Choices.. PIMCO is a good fund. I prefer the short duration bond fund right now but PTRAX is fine. Bonds are good, even if you're young and have a long time horizon. They give your portfolio ballast, and something that's relatively uncorrelated to equities. Basically for giving up a little return (and that's not a definite), you can can reduce a lot of volatility. It's insurance.

Smallcaps- I'd take LUSIX > FSLCX, mainly b/c it's a value fund. I like value funds, and longterm smallcap value produces some of the best returns. I'm also uncomfortable with growth funds for the next year or so.

International- Need some. It's been hot and talked about lately. No guaruntees on future returns, but I'm assuming this also gives you a hedge on the dollar as well (unhedged returns).

I'm not a big fan of weighting by capitalization. I prefer more of a balanced or fundy based approach. For your needs though, I might go something like

S&P Index 40%
LUSIX 25%
FDIVX 25%
PTRAX 10%

Gotta think about it, but something like that. Some of your funds are closed, but look pretty good so it's good you can get in through your 401k.

Then sure. Plug a chunk into your RothIRA and get learning. It's a stockpicker's market for sure...