Iím thinking of rolling my 401(k) from Fidelity into
Vanguard funds. I have lost money, but I feel that my
Vanguard funds have not lost as much as my Fidelity
funds. Should I stay the course with Fidelity or do the
rollover into Vanguard?
Beware concluding your loser mutual funds are indeed fit
for the garbage heap.
may be lousy funds.
they might not be.
periods like weíve gone through ó with the stock
market dropping and many mutual funds destroying savings
by 10 percent or more ó individuals see money slipping
away and figure they are holding a bad fund.
conclusion: Dump the garbage and go buy a winner.
looks could be deceiving.
for example, your mutual fund invests in large U.S.
stocks like Apple and Wal-Mart, you probably lost about
7.25 percent of your money last quarter.
if your mutual fund invests in U.S. government bonds,
your money probably grew about 3 percent last quarter.
thatís a clear choice, right? Not exactly.
recommendation is to hold a variety of funds ó stocks
and bonds ó even though the stock fund presented here
looks like an idiotic choice.
and bonds run in cycles, sweet for a while, then
unpleasant. Often, when stocks are cruel, bonds can be
benevolent. Since itís hard to predict when the script
will flip, you can historically count on stock funds to
eventually grow more than bonds and bond funds to soften
the blow when stocks go through a mean spell.
how the stock market changed in less than a year. Over
the last three months, the average fund investing in
large U.S. stocks lost 7.25 percent, according to Lipper.
But last year you might have adored the same fund as the
average large U.S. stock fund gained 11.32 percent.
the market, sectors run through their cycles. For
example, a fund investing in foreign countries probably
lost about 11 percent last quarter.
two stock funds in your 401(k) ó a U.S. stock fund
that lost 7 percent and an international fund that lost
11 percent ó the U.S. stock fund isnít better. There
will come a time when international stocks will make
more money than U.S. stocks. So you donít necessarily
dump either based on their most recent performance.
do you distinguish the truly good from the bad? Compare
your fund to the average fund like it.
the average fund that invests in large U.S. stocks lost
a bit more than 7 percent last quarter. If your fund
lost that, you donít have a loser. If it lost 10 or 11
percent, maybe you do.
three to five years is more reliable. You want mutual
funds in the top half of all funds like it. If itís in
the top quarter, even better. You can compare at Yahoo
Finance and Morningstar.com.
index fund is a good yardstick because it simply tells
you what the stock market did. The Standard & Poorís
500 index and the Vanguard 500 Index fund mimic the
index. If the fund in your 401(k) continually performs
better than that index, you have a keeper. If itís
worse, consider a change. For foreign stocks, the
Vanguard Total International Stock index is a good
consideration: fees. Vanguard index funds often have an
edge over others because it charges less. The Vanguard
500 Index, for example, charges 0.18 percent, or $18 for
a $10,000 investment. The average mutual fund charges
0.79 percent, or $79 for a $10,000 investment. The
difference adds up over time.