Home > 403B doings, part 4

403B doings, part 4

October 28th, 2008 at 04:06 am

So in the other parts we discussed a bit about learning about the mechanics of your 403B (aka 401K), research into what individual funds comprise your 403B, general macro considerations - how much should you want in equities, how much in non-equities like bonds and ready-asset. The rest of the parts are in category 403B doings.

Now we come to the heart of the question - what equities funds do you want in your equities part, and what bond/ready asset funds do you want on your non-equities side?

If you are a new hire, you think you have to rush this decision. So many decisions - aurgh! Don't rush it. Pick a couple of funds or the retirement target fund, then do the research, and PROMISE yourself to research and revisit your 403b/401K and change it around if necessary. Frankly the most important task for a new hire is to set the account up and get the bucks out. Usually you can monitor and rebalance your account from the web. Check to see if you have to wait 30/60/90 days between changing your funds around. Those restrictions happen to prevent you from mock day trading.

So what funds should you pick? Here's where the research and the narratives about each of your funds comes in. If you see several funds that look alike and seem to invest in the same funds, don't invest in all of them ... invest in 1. Preferably the one that has the lowest fees, or has the largest number of Morningstar stars...which is also based on the fee structure.

In my case, MDLOX and THVRX are international. In picking one I'd lean to the MDLOX because of its lower fees, and since it has a strong position of bonds, I can drop the bond fund holding a bit.

MASRX, MDBAX, MDLRX are similiar. Again, I'd consider the funds with the lower fees first.

Can't stress checking the fees strongly enough, especially times like these where you want the lowest fees. Aim for under 1%. After all, when the stock market goes down in the dumps its not as if the fee administrator will give you a break on the fees. Hah hah. Nope, they plan on figuring out the fees the one hour that the stock market rallied and charge that. And in the 403B/401K land, often the fees are hidden - no line item that says: Fee! It means that your results are not going to be quite as good as the fund claims.

You also want to consider what funds seem to complement each other. Morningstar has a chart that shows where 75% of a fund stocks are in its "style" box. Often it shades a corner or an edge. Does another fund shade a different corner or edge?

In my case, RGACX and RIDCX seem to be such a pair. Between the two, they cover the upper half of the style box. The fees seem reasonable, and they are 4 & 5 star funds to boot.

Final piece of advice is to pick a fund or pair of funds that will serve as a "core holding", then juice up that core holding with specialties. A decent core holding is often an index mimicking S&P 500 or total stock. Again it is valuable to know what particular stocks are inside - just because GM is big, doesn't mean you should have a ton of it.

Specialities are just that - growth, or midcap or small cap or real estate or international or...whatever. How much you want as core and how much specialty is really up to you. Word of advice: specialties add up. 10% international, 10% mid cap, 10% small cap, 10% international, 10% growth, 10% value means that you suddenly have 40% core and 60% specialty in a portfolio that should be 70% stock. (so a final would be a percent of a percent - 7%, 7%, 7%, 7%, 7%, 7%, 24%).

Here's another case where the

Text is Morningstar x-ray feature and Link is
Morningstar x-ray feature comes in handy. Not only can you pump in what you have, try making a mock portfolio and see how you do.

For the record I went extreme - in the 40% equities I had (1/4 core, 1/4 small, 1/4 mid, 1/4 international).

In the non-asset 60% I had (1/6 gov bond, 1/2 bond, 1/3 cash)

After you make your picks & set your 403B/401K, that's not the end. Maintenence strategies next. Whatever you do, don't forget it!

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