Question: What should I invest in for my 401K?
I'm investing 4% and am 23 years old. I have no idea what I am doing. I did some googling, but am even more confused now. Please help.
If I don't make a selection, my investments will go to BLACKROCK GLOBAL ALLOCATION R. Here are my choices:
Invesco Stable Asset Fund - Class ADP85
PIMCO Total Return Fund - Class R
T. Rowe Price Retirement Income Fund - Class R
T. Rowe Price Retirement 2010 Fund - Class R
T. Rowe Price Retirement 2020 Fund - Class R
T. Rowe Price Retirement 2030 Fund - Class R
T. Rowe Price Retirement 2040 Fund - Class R
T. Rowe Price Retirement 2050 Fund - Class R
BlackRock Global Allocation Fund, Inc. - Class R
BlackRock Equity Dividend Fund - Class R
Lord Abbett Fundamental Equity Fund - Class R3
SSgA S&P® 500 Index Fund
BlackRock Capital Appreciation Fund, Inc. - Class R
T. Rowe Price Growth Stock Fund - Class R
Perkins Mid Cap Value Fund - Class R
SSgA S&P MidCap Index Fund
Prudential Jennison Mid-Cap Growth Fund - Class R
Goldman Sachs Small Cap Value Fund - Class R
SSgA Russell Small Cap Index Fund
Lord Abbett Developing Growth Fund - Class R3
Thornburg International Value Fund - Class R3
Putnam International Capital Opportunities Fund - Class R
Oppenheimer Developing Markets Fund - Class N
SSgA/Tuckerman REIT Index Fund
Columbia Seligman Communications and Information Fund - Class R
Answer:
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The Pimco fund has fallen on hard times. You probably don't really want any of that. The T. Rowe Price Retirement 2050 fund has had an excellent performance record. That might be one to consider. For someone who really does not want to think too much about asset allocation, it would be something to consider. It has Morningstar's highest rating--5 stars. However, that is not saying all that much. It's 5 year return is less than 1%.
The Global Allocation fund has a very good record although Morningstar rates it only 4 star. 5 year return is 4.7%. That is a lot better than less than 1%. There is more risk there though.
The Equity Dividend fund has a 5 year return of 2.7%. Not great but not terrible either. It has a 5 star rating. Holds mostly dividend paying blue chip stocks.
Lord Abbett 5 year return 3%. Not too bad, but only 3 stars. Mostly solid equity holdings but a little more aggressive than Equity Dividend.
Blackrock Cap Appr is about average. 5 yr return 2.3%
If it were I, I would allocate about 30% to the Equity Dividend Fund, 30% to the Global Allocation Fund, and 30% to the Invesco Stable Asset Fund (That I assume is a money market fund) Sort of a hedge against a market sell off. If that happens and the market drops 25% It would be time to move that 30% to the other 2 categories.
The blackrock global allocation fund, is not a bad choice. Buy it & forget it.
If I were going to pick individual funds, I would go with:
40% s&p500 index
10% mid cap index
05% russell small cap index
20% thornburg international value
20% pimco total return
05% stable value
Investing for Dummies by Eric Tyson is a great primer about investing.
Be especially concerned about the expenses some of these funds charge.
I recommend that you read the profile for each fund and reject any that seem complicated or narrowly focused. Don't try to pick a winner. Pick one that has has low expense ratio, has had a decent return compared to the others, and seems stable. I recommend not investing in the "Retirement" funds, as they generally have high costs and low return.
Obvious possibilities are SSgA S&P® 500 Index Fund and PIMCO Total Return Fund, but it is up to you. If this is your only investment account, then consider diversifying a little more by allocating 80% to a stock fund (such as SSgA S&P® 500 Index Fund) and 20% to a bond fund (such as PIMCO Total Return Fund).
Finally, if this is your only savings, then 4% is low (even though it is more than average). Try to save more.