401K Rollover - Where to Roll it Over?


L

LeoCat

Hello group,

I know nothing about 401K's or investing, but I was told I should roll
over the money I had in my previous employer's 401K into my new
employers 401K, and rather thank pick blindly as I usually do, I hoped
I might solicit some good ideas here.

My stats are: 27 year old female, $24K in old employer's plan, $8K in
current plan.

I have that 8K invested as follows:

Dodge & Cox Value Equity Fund - 10%
Franklin Portfolio Mid Cap Stock Fund - 35%
DFA U.S. Small Cap Fund - 20%
Capital Guardian Emerging Markets Equity Fund - 35%

I picked these randomly. I have no idea is this is a good mix, a risky
one, a conservative one, or anything like that. I'd like to know more
and not be so random with my money so if anyone has any ideas about
good overvieiw sites I'd appreciate those as well.

But to the question at hand, I'm trying to choose how to allocate my
old employer's $24K across these funds:

INVESCO Stable Value Fund
Mellon Bank EB SMAM Aggregate Bond Index Fund
Vanguard LifeStrategy Conservative Growth Fund
Vanguard LifeStrategy Moderate Growth Fund
Vanguard LifeStrategy Growth Fund
Mellon Capital Tactical Asset Allocation Fund
Barclays Global Investors S&P 500 Index Fund
Vanguard FTSE Social Index Fund
Dodge & Cox Value Equity Fund
Wellington Growth Fund
Franklin Portfolio Mid Cap Stock Fund
DFA U.S. Small Cap Fund
Capital Guardian International Equity Fund
Capital Guardian Emerging Markets Equity Fund
Viacom Company Stock Fund, Class A
Viacom Company Stock Fund, Class B
CBS Company Stock Fund, Class A
CBS Company Stock Fund, Class B

Any thoughts or advice will be much appreciated!

Thanks,
S
 
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J

John A. Weeks III

LeoCat said:
I know nothing about 401K's or investing, but I was told I should roll
over the money I had in my previous employer's 401K into my new
employers 401K, and rather thank pick blindly as I usually do, I hoped
I might solicit some good ideas here.
I prefer to have control over my money. I'd suggest that you
consider rolling that 401K into a self-directed IRA at a major
funds supermarket. Preferably one that offers low cost and
no-load mutual funds.
My stats are: 27 year old female, $24K in old employer's plan, $8K in
current plan.
Doing good so far...
I have that 8K invested as follows:

Dodge & Cox Value Equity Fund - 10%
Franklin Portfolio Mid Cap Stock Fund - 35%
DFA U.S. Small Cap Fund - 20%
Capital Guardian Emerging Markets Equity Fund - 35%
How is this doing for you? I'd be tempted to reduce the
emerging, and get more big-cap and value. In your roll-over,
I would look carefully at index funds or ETF's like Spiders
and Vipers.
I picked these randomly. I have no idea is this is a good mix, a risky
one, a conservative one, or anything like that. I'd like to know more
and not be so random with my money so if anyone has any ideas about
good overvieiw sites I'd appreciate those as well.
That takes education. Just like you likely could not do a good
job on brain surgery, you cannot expect to do a good job of
investing without doing some work. Pick up a book or two on
the subject, and check out places like Morningstar.
But to the question at hand, I'm trying to choose how to allocate my
old employer's $24K across these funds:

INVESCO Stable Value Fund
Mellon Bank EB SMAM Aggregate Bond Index Fund
Vanguard LifeStrategy Conservative Growth Fund
Vanguard LifeStrategy Moderate Growth Fund
Vanguard LifeStrategy Growth Fund
Mellon Capital Tactical Asset Allocation Fund
Barclays Global Investors S&P 500 Index Fund
Vanguard FTSE Social Index Fund
Dodge & Cox Value Equity Fund
Wellington Growth Fund
Franklin Portfolio Mid Cap Stock Fund
DFA U.S. Small Cap Fund
Capital Guardian International Equity Fund
Capital Guardian Emerging Markets Equity Fund
Viacom Company Stock Fund, Class A
Viacom Company Stock Fund, Class B
CBS Company Stock Fund, Class A
CBS Company Stock Fund, Class B

Any thoughts or advice will be much appreciated!
Yuck. What a mix of stuff that I have never heard of. Since
I don't know most of these funds, I cannot pick specific funds
for you to look at. Rather, we can pick boxes. You will learn
about fund boxes when you visit Morningstar. Basically, you want
some big cap, some mid cap, and some small cap. Add in a chunk
of value, a small slice of growth, and a dash of international.
Don't go overboard on international since most large US companies
are multinational to start with. Avoid the funds that have front
end load fees in favor of those who do not have such fees.

-john-
 
B

Bread

Doing good so far...
Note that you probably have three choices - (a) leave the 24k with
the old employer; (b) roll that 24k into a self-directed IRA; or
(c) roll that 24k into your new employer's plan.

I'd probably roll it into a self-directed IRA. As John said, the
brokerages offer great variety of funds in their fund supermarkets,
and they usually offer much easier access and control through
excellent web sites. I've rolled two previous employers' 401k
balances into an IRA account at Fidelity and am very pleased with it.
I really hardly ever touch that account. I've got that account
invested in four funds and basically just leave it alone. (I have
another brokerage account at Fidelity, a taxable account, where I
play a bit more with individual stocks and such).
That takes education. Just like you likely could not do a good
job on brain surgery, you cannot expect to do a good job of investing
without doing some work. Pick up a book or two on
the subject, and check out places like Morningstar.
I hate the titles and bright yellow covers, but very much like the
content of For Dummies books by Eric Tyson. Personal Finance for
Dummies covers a nicely broad array of topics, from funds for
retirement to types of accounts to insurance.

That may be the single most diversified investment fund in the world.
It's got about 50% in the Vanguard Total Stock Market fund (Wilshre 5000),
and 15% in the Total International Stock Index, and 10% in the Total Bond
Index. In terms of asset classes, that gets every class of domestic
equity (large, small, value, growth, etc), the Lehman investment grade
bond index, and larger equities across the planet. (the rest is in
an asset allocation fund which, itself, invests in those various asset
classes, but mixes up the proportions some). It's got very low costs
(Vanguard doesn't charge anything above their very low costs of the
underlying funds themselves).

Note that I'm not specifically recommending this fund (and the other
Vanguard lifestrategy funds use similar means but more conservative
allocations - bear in mind that our OP is very young and has a very
long time to let retirement assets grow and/or recover from market
stumbles along the way).

Some of the other funds lists are quite good, most have higher
costs, etc. But these lifestrategy funds might be the easiest
way for her to just set it and forget it.

As far as I know, there are Dodge and Cox Balanced, Income, Intl
and Equity funds. No "value" in the names, though Dodge and Cox
tend to invest with a value *style*. Their Equity and Balanced
funds are closed to new investors (though one may be able to put
money into them through one's employer's 401k), and none of them
are available, AFAIK, without transaction fees through the fund
supermarkets. And they're all very well regarded - take a look
at what Morningstar has to say about them, for example.

Presumably, you work for Viacom. I'd probaly avoid investing
in my own company's stock, unless there was some substantial
incentive, and even if that were the case, I'd limit it to a
very small proportion of my portfolio. (example of incentive
would be ESPP with discounts on the purchases). Your paycheck
is already subject to the fortunes of the company. No need to
risk your portfolio on it as well. This has nothing to do with
how great a company it may be and everything to do with risk
management and diversification.

As John pointed out, there's a *lot* of great material to read
over at Morningstar. Not just specific reports about funds (though
there are lots of those) but also about asset allocation and
other investment topics. It's a very good place to spend some
time reading.
 
E

Elle

John A. Weeks III said:
I prefer to have control over my money. I'd suggest that you
consider rolling that 401K into a self-directed IRA at a major
funds supermarket. Preferably one that offers low cost and
no-load mutual funds.
Ditto. To reinforce this, to the OP: Please be aware that 401K choices often
tend to have high fees associated with them. And, they simply do not tend
to offer everything an investor wants. The matching by the company still
makes 401Ks a superior choice, but when leaving one employer with a 401(k)
to go to another, definitely roll over the first 401(k) to an IRA, so you
can call your own shots.

By the way, the general guideline for retirement investing goes like this:
1. Invest in the 401(k) up to the employer's matching. This grabs the 100%
return that the matching provides. Can't beat that return no reasonable way,
no how.
2. Max out one's Roth IRA (to grab its tax advantage)
3. Resume contributions to one's 401(k), to take advantage of its tax
deduction yada.

As a pretty good introduction to allocating your retirement portfolio, I
recommend experimenting with the free online portfolio allocation tools I
list at http://home.earthlink.net/~elle_navorski/id4.html .

Lastly, remember there's no rush on re-allocating. Take six months or so of
a few hours each weekend thinking over allocation.
 
S

Sandra Loosemore

MichaelC said:
2) Off the top of my head, and at your age:
10% Stable Value Fund
30% Barclays S&P 500 Fund (If the Dodge and Cox option is DODGX, invest in
it rather than the Barclays.)
10% Mid Cap Stock Fund
20% DFA Small Cap
20% International Equity
10% Emerging Markets

Others here may have other suggestions, and I'd certainly like to see more
options available for further diversification, but the above ought to work
well for maximizing return over time whilst mitigating risk.
Given that the OP doesn't know much about investing and doesn't really
have a huge amount of money to invest in the first place, I think the
6 funds you listed are already too many. The fewer funds you hold,
the easier it is to keep track of them, and the less overwhelming it
is for a new investor. My own recommendation would be to either put
100% into the appropriate Vanguard Lifecycle fund and then forget
about it, or else go for the S&P 500 fund or DODGX as an initial core
holding and plan on diversifying later.

BTW, it's perfectly acceptable to leave money in your old employer's
401(k) plan if you're happy with the investment options there, or if
they complement the choices available in your new plan. E.g., I just
changed jobs recently and my new employer's plan is really crap
compared to the choices I had at my previous two jobs. So I've picked
the one best fund from my new plan (it happens to be an international
fund) and I'm just using it to augment the core holdings I've already
accumulated in my other accounts.

-Sandra
 
M

MichaelC

Sandra Loosemore said:
Given that the OP doesn't know much about investing and doesn't really
have a huge amount of money to invest in the first place, I think the
6 funds you listed are already too many. The fewer funds you hold,
the easier it is to keep track of them, and the less overwhelming it
is for a new investor. My own recommendation would be to either put
100% into the appropriate Vanguard Lifecycle fund and then forget
about it, or else go for the S&P 500 fund or DODGX as an initial core
holding and plan on diversifying later.
I have no huge problem with either suggestion. I hold 12 different
investments, but you're right, it's my hobby, and therefore, I enjoy fussing
over it.

The LifeStrategy funds bug me because they leave some money on the table for
the risk taken but at age 26, loading up on DODGX is hard to argue with.
That is ONE SWEET FUND, and it's closed to noninstitutional new investors
for a reason. 80-90% DODGX and 20-10% Stable Value would do 90% of what a
more fussy portolio will.

Mike

BTW, it's perfectly acceptable to leave money in your old employer's
401(k) plan if you're happy with the investment options there, or if
they complement the choices available in your new plan. E.g., I just
changed jobs recently and my new employer's plan is really crap
compared to the choices I had at my previous two jobs. So I've picked
the one best fund from my new plan (it happens to be an international
fund) and I'm just using it to augment the core holdings I've already
accumulated in my other accounts.

-Sandra

======================================= MODERATOR'S COMMENT:
Please trim the post to which you are responding. "Trim" means that except for a few lines to add context, the previous post is deleted.
 
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E

Elizabeth Richardson

MichaelC said:
The LifeStrategy funds bug me because they leave some money on the table for
the risk taken
I don't understand what you mean by leaving money on the table. Vanguard's
LifeStrategy Funds have very low expenses (0.3% I believe) and are fully
invested.

Elizabeth Richardson
 
B

BreadWithSpam

Elizabeth Richardson said:
I don't understand what you mean by leaving money on the table. Vanguard's
LifeStrategy Funds have very low expenses (0.3% I believe) and are fully
invested.
I'm not shre what he meant by that either, but many folks
say "leaving money on the table" to indicate that an equity
fund, for example, is sitting on cash instead of being fully
invested in equities.

The Lifestrategy funds all have some cash allocation and
some bond allocation. If you're looking for an equity fund
100% invested in equities, they're not for you. Even most
actively managed equity funds aren't always fully invested,
though some come a lot closer than others.
 
M

MichaelC

Elizabeth Richardson said:
I don't understand what you mean by leaving money on the table. Vanguard's
LifeStrategy Funds have very low expenses (0.3% I believe) and are fully
invested.
These funds (not just Vanguard, but also Fidelity's) don't seem to bring
back the returns they should, leaving a couple of points "on the table".
Perhaps this is just a statistical anomaly (they are all relatively new) but
I would expect a fund billing itself as targeting a 2045 retirement, for
example, to at least be matching or exceeding a basket of funds that the
average person can put together on their own. My general sense is that they
do not, but again, that may just be the statistics.

Mike
 
B

Bread

These funds (not just Vanguard, but also Fidelity's) don't seem to bring
back the returns they should, leaving a couple of points "on the table".
Um, "the returns they should"?

They are built out of indices and have asset allocations targeting certain
levels of risk. The "shoulds" here are (a) they should match what the
set of underlying indices get, with minimal drag from fees; (b) they
should be chosen with an asset allocation which matches the investors
needs.
Perhaps this is just a statistical anomaly (they are all relatively new) but
I would expect a fund billing itself as targeting a 2045 retirement, for
example, to at least be matching or exceeding a basket of funds that the
average person can put together on their own.
Have you seen what the average person puts together on his own? The
average person (a) pays way more in fees, especially in actively managed
funds; (b) doesn't always choose an appropriate asset allocation; (c) rarely
does the right thing for rebalancing to maintain that asset allocation.

These things make it much easier for an investor to set it and forget it.

Most "average persons" are not inclined to put anything together on their
own, and even if they were, don't necessarily have the time or inclination
for research necessary to come up with something better than a well chosen
lifestyle fund. These funds aren't for everyone, but they do seem appropriate
for a lot of folks.

That said, there were a couple of excellent other funds listed that
the OP ought to consider as well. But if he or she wants to just put
money into one fund and never have to think much about it, a well chosen
asset allocation built out of low-cost indices is not a bad idea at all.
 
M

Mark Freeland

Bread said:
Um, "the returns they should"?

They are built out of indices and have asset allocations targeting certain
levels of risk. The "shoulds" here are (a) they should match what the
set of underlying indices get, with minimal drag from fees; (b) they
should be chosen with an asset allocation which matches the investors
needs.
(a) means that for a given allocation, they leave nothing on the table - the
only way to do better with a given allocation is to pick funds that
outperform the indexes. One can also posit that a different allocation
would be better, but (b) addresses that.

There seems to be a bit of confusion about these hybrid funds. There are
two different types - one that keeps a fixed (or relatively fixed) asset
allocation, and one that gradually drifts towards bonds and cash.

http://news.morningstar.com/article/article.asp?id=127839

The Vanguard LifeStrategy funds, like Fidelity Asset Manager funds, are of
the former type (as are traditional balanced funds). Both the Vanguard and
the Fidelity funds have been around for over a decade. The Vanguard Target
20xx funds are of the latter type, and are indeed newer.

It would seem that almost by definition, the target funds would be expected
to return less than funds that kept their initial allocations. But by
shifting allocations, they are also reducing risk (read volatility) over
time.
 
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T

Tad Borek

Many investors prefer to rollover their old-employer 401ks to rollover
IRAs, to open up the investment choices, and perhaps, allow for a
conversion to a Roth IRA. The typical 401k has a list of funds that you
can get in a Rollover IRA, just by opening the IRA at a custodian
offering the same funds. So why be limited to a list of 20 investments
when you can get those 20, plus another 10,000 other alternatives?

Your list of funds could be duplicated easily in one or two Rollover
IRAs, with two exceptions I can see. DFA's small-cap fund is not
available directly to retail (individual) investors, you'd need to work
with a fee-only investment advisor who is approved to use DFA funds, and
pay that advisor's fee. Your 401k has it as an included investment, and
if that fund is of interest to you that could be a reason to leave
dollars in the 401k. This is a well-regarded, passively managed mutual
fund for small-company stocks, that selects its stocks using slightly
more sophisticated criteria than say Vanguard's small-cap index fund
(you can read up on the details at DFA's web site). If you want to
invest some of your retirement dollars in small-company stocks, that
might be the fund for you, and a reason to keep the 401k.

Dodge & Cox's fund may also be of interest - I believe it's closed to
new investors, so you might not be able to get it outside the 401k. It's
an actively managed fund but has a good track record within its category.

Of course that's all academic if you aren't interested in either of
these funds. I believe the rest of the investments could be bought in an
IRA opened elsewhere, though I don't know every fund on your list.

Regarding selecting funds in general, a good start would be reading the
materials on the topic on Vanguard's web site. They manage those
LifeStrategy funds and the materials describing them might give you some
insight into how to make these basic choices between stocks & bonds and
different sub-categories of each. Actually for someone who doesn't want
to spend a lot of time choosing and overseeing mutual funds, the
LifeStrategy series is a pretty good alternative.

-Tad
 
M

Mark Freeland

Tad Borek said:
John said:
But to the question at hand, I'm trying to choose how to allocate my
old employer's $24K across these funds:

INVESCO Stable Value Fund
Mellon Bank EB SMAM Aggregate Bond Index Fund
Vanguard LifeStrategy Conservative Growth Fund
[...]
Dodge & Cox Value Equity Fund
[...]
DFA U.S. Small Cap Fund
[...]
Any thoughts or advice will be much appreciated!
Many investors prefer to rollover their old-employer 401ks to rollover
IRAs, to open up the investment choices, and perhaps, allow for a
conversion to a Roth IRA. The typical 401k has a list of funds that you
can get in a Rollover IRA, just by opening the IRA at a custodian
offering the same funds. So why be limited to a list of 20 investments
when you can get those 20, plus another 10,000 other alternatives?
You answer this rhetorical question in your next paragraph, but there are
other reasons as well (see below). Nevertheless, I agree that in most
cases, the flexibility of an IRA outweighs the factors in favor of the 401k.
Your list of funds could be duplicated easily in one or two Rollover
IRAs, with two exceptions I can see.
Summarizing your points on DFA and Dodge and Cox:
1) DFA not available outside the 401k without an adviser fee
2) D&C (outside 401k) is a closed fund
[...]
Of course that's all academic if you aren't interested in either of
these funds. I believe the rest of the investments could be bought in an
IRA opened elsewhere, though I don't know every fund on your list.
Other fund-specific reasons for keeping money in a 401(k)

3) Stable value funds (and GICs) are not available at the retail level, even
for IRAs - not that they would be a good choice for the OP (at age 27), but
they can be for some people;

4) Some funds are only offered to institutions, e.g. the Standish Mellon
(SMAM) fund:
http://www.standishmellon.com/public/investment_strategies/indexed/aggregate/aggregate.html
(but one should be able to get a comparable total bond index fund easily)

5) Even if funds are available at the retail level, the 401(k) may provide
cheaper institutional shares. Often Vanguard fund shares in 401(k) plans
are cheaper Admiral, if not institutional, class.

I concur with your bottom line, viz. a Vanguard LifeStrategy fund could
serve the OP well (whether inside the 401k or in a rollover IRA -
LifeStrategy funds only come in one share class).
 
I

iarwain_8

I'd be tempted to reduce the emerging, and get more big-cap and value

Given that large cap stocks are generally accepted to be overvalued,
and the greater potential for a higher return with the emerging
markets, shouldn't she stick with that? She is only 27 after all, she
can tolerate some short term risk.
 
B

Bread

Given that large cap stocks are generally accepted to be overvalued,
Where'd you read that?

Some folks might consider them overvalued, but take a look at the
current P/E of the S&P500, for example, and you'll find that it's
awfully close to its historical average (as opposed to being nearly
twice its historical average as it was a few years ago).

In particular, especially, large-cap growth stocks - stocks with
more quickly growing earnings - are cheaper than they've been in
many years, by any of several measures.

Moreover, even some of the deep-value guys who'd been sitting on
cash for several years because they couldn't find the super-bargains
that they prefer are starting to deploy their cash.
and the greater potential for a higher return with the emerging
markets, shouldn't she stick with that?
Emerging markets have great potential. And huge risks. She needs
to diversify and have a well balanced asset allocation.
 
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E

Elle

Bread said:
Some folks might consider them overvalued, but take a look at the
current P/E of the S&P500, for example, and you'll find that it's
awfully close to its historical average (as opposed to being nearly
twice its historical average as it was a few years ago).
Just my opinion, but the S&P 500 P/E, currently at about 19.2, is not
"awfully close" to the historical average of about 14.6. That's a 31+%
premium over the historical average.

Omit data from 1998 on, and the average is about 13.6, yielding a 41%
premium.

(Data from Yale's Robert Shiller.)
In particular, especially, large-cap growth stocks - stocks with
more quickly growing earnings - are cheaper than they've been in
many years, by any of several measures.
The only other measure I personally think worthy of mention is interest
rates. They're low now, arguing that buyers should be willing to pay a bit
more for stocks.
Moreover, even some of the deep-value guys who'd been sitting on
cash for several years because they couldn't find the super-bargains
that they prefer are starting to deploy their cash.
Value guys, perhaps. Deep value guys are still fishing and not getting many
bites.
 
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