| How to select the correct IRA fund |
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SethNaga
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| How to select the correct IRA fund |
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How to choose which one of the several funds is suitable for us? (Vanguard, Fidelity, T row price, Janus, Scudder, Pimco, Putnam etc)
Recently myself (42 years old) and my wife (40 years old) rolled over from 401K to IRA Account: I have 32K and my wife has 100K (Trow Price) in the account. The rate of returns in the last 5 years have been very low (3 to 5%). We have just started our own small business last month.
Any suggestion is appreciated
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Mon Jan 16, 2006 8:21 pm |
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MattL
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Yes, fund family is important, but what is just as important is being the right type 0f fund(s) for your risk tolerance.
My IRA is with Vanguard, the best family IMO.
What type of fund(s) are you in?
Debt Elimination
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Tue Jan 17, 2006 3:32 pm |
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Kirby
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I'd go with a Vanguard fund, or a Fiedelty fund. Either way make sure it's tailored for your age!
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Wed Jan 25, 2006 5:51 am |
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Martin
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Since you have about 20 year until you retire, it may make sense to focus more on returns and less on volatility. Much of the latter will get averaged out over such a long time period.
Here are average annual returns (and volatilities) for varaious indices for 1996-2005:
S&P 500: 8.9% (16%)
Russell 2000 Growth: 9.5% (28%)
Russell 2000 Value: 14.2% (17%)
The average returns look pretty similar for longer time periods. It may make sense to consider a small cap value fund (or funds) if you can handle the somewhat higher volatility of smaller stocks.
I would look for funds that consistently outperform their benchmark by a little bit net of all fees. These funds should have an edge in stock selection and over 20 years getting an extra 1-2% per year makes a big difference. Funds with performance that is very different than the benchmark may be more risky, because they are probably making fairly extreme bets that won't always work out.
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Fri Jan 27, 2006 4:31 pm |
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Rolo
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Martin is the only one making sense here.
Why limit yourself to one family when you can have ALL of them with a discount broker?
"Expect me when you see me."
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Fri Jan 27, 2006 8:20 pm |
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Jaszbo
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I just wrote a 5 page article with a place I belong to and if you want to compare T. Row Price, Fidelity and Vangaurd I would say this.
If you prefer managed funds I would go with T. Rowe Price as in the past 5 years 86% of their funds beat the market average. If you prefer index funds with a lot of options of which index funds to pick from I would go with vanguard. Vanguard is known for low operating expenses, but lately fidelity is beating them with their index funds. Fidelity doesn't have as many index funds to pick from. If you feel you need help, fidelity has a lot more resources and seminars than the other two.
Personally I'm a vanguard fan, but you can split your investments into to places. A lot of people I know have a Roth IRA at both fidelity and vanguard. I'm personally not the biggest fan of fidelity myself, but they are the biggest. If I had to put the discount brokers in order of my preference I would do in this order
1) vanguard
2) T. Rowe Price
3) fidelity
If I was a big fan of managed funds, then I would go with T. Rowe Price over vanguard. I like the managers at T. Rowe Price better to be honest. It's not just what they select, but one simple, very very simple fund to compare to is a manged fund such as the life cycle fund. I think vanguard starts out doing the best job, but at the retirement age when you need the money the most, fidelity is the absolute worse, then vanguard and T. Rowe Price I would say is the best.
Mix your retirement if you want. Some people at retirement are putting their Roth IRA into one place and their tradtional IRA in another place.
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Fri Jan 27, 2006 8:41 pm |
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SethNaga
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Jaszbo – your quote above “I just wrote a 5 page article with a place I belong to and if you want to compare T. Row Price, Fidelity and Vangaurd I would say this”
Could you provide a link so that we can read your writing?
Martin Gremm : Your quote above “Funds with performance that is very different than the benchmark may be more risky, because they are probably making fairly extreme bets that won't always work out.”
Can you please elaborate a bit; I could not understand
Thanks to all for the help
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Fri Jan 27, 2006 8:58 pm |
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Martin
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Location: Houston, TX
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quote:
Originally posted by SethNaga
Martin Gremm : Your quote above “Funds with performance that is very different than the benchmark may be more risky, because they are probably making fairly extreme bets that won't always work out.”
Can you please elaborate a bit; I could not understand
I can try  . Let's pick an extreme example to ilustrate the point: A mutual fund manager could put all the fund assets in a single stock. If it is a good pick, the fund will rack up amazing returns that will look very different than the index returns. If you base your fund selection just on historical performance, you may end up with this fund. But if the fund manager's next pick is a dog you may be exposed to equally amazing losses.
If you have a reasonably well-diversified portfolio of stocks fitting a description like 'small cap value' it is almost guaranteed to track an appropriate benchmark pretty closely. The reason is that stock specific returns will average out to something resembling the index returns. After all, the index is basically an average over the returns of the constituent stocks.
A good portfolio manager should be able to select stocks that on average outperform the index, but to get performance that is very different from the benchmark you need significant concentrations in a sector or a specific secutiry.
I would look for a manager who knows how to enrich good stocks in his fund rather than a cowboy who bets the farm on his latest idea. The former tends to be a much more sustainable approach.
I hope this makes a little more sense!
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Fri Jan 27, 2006 9:51 pm |
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