Saturday, May 17, 2008

TAG 401(k) Choices

Back to retirement investments.

Often at the end of my 401(k) enrollment meetings, an artist asks: "Okay, I'm getting into this 401(k) Pension thing. So what do I invest in?"

I usually blather on, listing various options, stressing that I'm not a certified financial advisor. But since this is going to be a semi-succinct post, let me whittle today's advice down to a few points ...

Most 401(K) plans limit a participant's options. They give you three or four bond funds, ten or twenty stock funds (foreign and domestic), a choice of "Retirement Destination" funds which are a collection of investment accounts that put you in a set ratio of stock and bond selections which become more conservative (tilted more to bonds) as you get closer to retirement.

We get gripes from time to time about fund choices, and I sympathize, but few 401(k) plans give sophisticated investors the range of options they like. (A smattering of 401(k) Plans have "brokerage windows" where participants can invest in whatever they desire, but these drive administrative costs way up and few plans have them.)

Most participants, however, aren't sophisticated investors. Most get the information and forms for the TAG Plan and then get their own financial advisor to help them ; others ask me (did I already say this?): "What funds do I get into?"

I always have a short, simple answer. Be broadly diversified, have foreign stock, domestic stocks, and bonds. And patience. Plenty of patience.

I don't believe investing needs to be complicated. In the TAG plan (you can find a list of all the funds on page 9 at the link above), there are a bunch of ways to do that. One way is do a single "Retirement Destination" account. A single click on the fund with your retirement date, and you're done.

But maybe a better way is to go for more quality and use two funds from the Plan. The stock fund would be T. Rowe Price Spectrum Growth, highly rated by Morningstar and a choice that gives you wide stock diversification.

"...Spectrum Growth is a great choice for one-stop exposure ... For investors with long time horizons and a willingness to ride out the inevitable bumps of an all-stock portfilio, this fund holds much appeal ...

Moderate costs are one reason for that ...Extending the [cost] edge is the quality of the fund's underlying holdings. Indeed, a few of them, such as T. Rowe Price Equity Income, are Analyst Picks. Finally the fund benefits from skilled management at the top ...

Morningstar Funds 500

The other fund would be PIMCO Total Return, giving you a big slug of bonds, run by Bill Gross and his merry band of top-flight analysts down in Newport Beach, CA.

PTR in an intermediate bond fund so there will be a little up and down to it, but Gross is one of the savviest bond traders in the business (don't let the beach address fool you).

... Manager Bill Gross and PIMCO are our Fixded Income Fund Managers of the Year for 2007. ...Gross and PIMCO won with style ...[T]hey moved into higher-quality fonds(and away from corporate fare) and took on more interest-rate sensitivity ... Thanks to its bets, the fund has looked like a champ since mid-2007 ... It's more than 9% total return (2007) ranks in the intermediate bond category top 1% ...

-- Morningstar Funds 500

The only other question is: how much of your hard-earned money should you put in one account, and how much in another? That, of course, depends on your tolerance for risk, but my non-certified advice ...

In your twenties and thirties, plunk down 70% in stocks and 30% in bonds.

In your forties and fifties, try a mix of 60% stocks and 40% bonds.

And when you reach geezerhood, focus on a mix of 50/50 or maybe even 60-70% bonds and 30-40% stocks. (Your bond/stock ratio will depend on your tolerance for the roller-coaster ride that stocks give you.)

Final thought: TAG is having an investment seminar for members at its Tuesday, May 27th membership meeting. We'll have three financial advisors there to answer any and all questions, so you might want to mark your calendar.

(More about this later.)


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