What Mutual Funds Should I Pick?

What Mutual Funds Should I Pick?

Again, this is not a one-size-fits-all kind of question. I will say that there are a variety of 401K plans that offer “Funds-of-Funds”. A few examples of funds like this are “Fidelity Freedom 2040” or “Vanguard Target Retirement 2025”. Basically, these funds hold a variety of other mutual funds on the inside. Their aim is to put together a balanced portfolio with the goal of retiring in the year that is stated. For example, the “Vanguard Target Retirement 2025” fund is for people who are aiming to retire in, or around, the year 2025. It will be comprised of a more conservative investment portfolio than the “Vanguard Target Retirement 2045” Fund. This is because as you grow older, you should slowly make your retirement fund more conservative to protect against large swings in the stock market. These funds will actually slowly rebalance their holdings in order to slowly get more and more conservative as you approach retirement. I am a huge fan of these funds for the average 401K investor. If you choose this route, you will probably want to invest 100% of your portfolio in one of these funds. Most of you probably have been told to never, ever invest “all of your eggs in one basket”. The difference here is that each of these funds holds approximately 10 mutual funds (or thousands of total stocks), so you are probably more diversified than you would be if you were to assemble your own portfolio.

If you would much rather construct your own portfolio, then you should diversify your portfolio according to your risk tolerance. Regardless of your asset class, you should invest a percentage of your 401K across all asset classes, including Large-Cap, Mid-Cap, Small-Cap, International, and Bonds. I am going to give very broad-based guidelines here so that you can begin to construct your own portfolio if you wish. I am going to split the suggestions into 5 age groups and risk tolerances. Please note that the age groups and risk tolerances do not necessarily fit together (as some people are more or less risky than others), but you should choose either the age bracket, or risk tolerance to make your decisions.

Aggressive Portfolio – Typical Age Range: 18 – 35
25% Small-Cap, 25% Mid-Cap, 35% International, 15% Large-Cap, 0% Bonds

Moderately Aggressive Portfolio – Typical Age Range: 35 – 45
15% Small-Cap, 15% Mid-Cap, 20% International, 30% Large-Cap, 20% Bonds

Moderately Conservative Portfolio – Typical Age Range: 45 – 55
10% Small-Cap, 10% Mid-Cap, 10% International, 40% Large-Cap, 30% Bonds

Conservative Portfolio – Typical Age Range: 55+
5% Small-Cap, 5% Mid-Cap, 5% International, 40% Large-Cap, 45% Bonds

Retirement Junkie is a website that the Hagopian Institute put together as a source for free information to help people prepare for retirement.  Please visit retirementjunkie.com, and follow MrEmergingMedia on Twitter for more retirement tips, along with other fun offerings from Todd Hagopian and the Hagopian Institute.


About Todd Hagopian (@ToddHagopian)

Todd Hagopian received his BA from Eastern Michigan University with a major in Political Science. After graduation, he worked as a Financial Advisor and a Bank Manager before returning to school. He attended Michigan State University, where he completed an MBA with a double-major in Finance and Marketing. Todd is now a Senior Product Development Manager for a Fortune 500 company. He frequently writes about business issues, social media strategy, and political issues that he finds important. Enjoy the blog!

Posted on December 10, 2011, in Investing and tagged , , , , , , . Bookmark the permalink. Leave a comment.

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