Here are some frequently-asked questions (and their answers) for our 401k recommendations.

What is a Style Box?

Style boxes, like those shown to the right, are an easy way to map different kinds of funds or asset classes. Morningstar is best known for the use of style boxes to illustrate the asset class composition of individual mutual funds.

We use style boxes here to show asset classes as components in an investment portfolio. To better understand what we look for in a style box, read about the ideal portfolio.

The major asset classes for U.S. and international equities are:

What does 80-20 or 60-40 mean?

When we refer to 80-20, we mean 80% of your money is invested in equity funds (funds holding stocks), and 20% is in fixed-income funds (corporate and government bond funds and stable value funds). Higher equity percentages indicate higher rates of expected long term return, but with higher risk in the short term. In general, the equity portion should decline as an investor gets closer to retirement.

How much risk should I take?

Only you can answer this question because everyone has a different situation and a different level of risk tolerance. Generally, younger investors can afford to take more risk because they have a longer time horizon before they need to use the money for retirement. For help in determining how much risk you are comfortable taking, you should read the articles linked on our homepage. Once you know your risk tolerance, the articles will show you how to construct your perfect retirement portfolio.

How can I change my plan's choices?

Typically plans fail to include funds that invest in small-cap stocks, value stocks or international stocks. You and your fellow employees may be able to persuade the trustees of your plan to add some investment options. You'll need to know who makes the decisions about your plan, and you need to understand what you want and why the additions or changes are to everyone's benefit. Our article, The Ultimate Buy-and-Hold Strategy explains why it's important to include specific asset classes in a retirement plan portfolio. We encourage you to make copies and distribute the article freely.

Why are you against using load funds?

There is no reason why a well informed, intelligent investor should pay a sales commission to buy a mutual fund. Nearly everyone is capable of finding good funds without paying a broker, someone whose interests are inevitably in conflict with those of the investor. Every study on the subject has concluded that over long periods of time there is virtually no difference in returns between the performance of load funds and no-load funds -- except for the sales commission. For a complete discussion of this, read Ten Reasons Why You Should Never Buy a Load Fund.

 

For more frequently-asked questions (and their answers), go to 401(k) Investors: your questions answered. 

DISCLAIMER:
This information is provided by Merriman Berkman Next,Inc., a registered investment advisor, and is believed to be from reliable sources, but no guarantee is made as to accuracy or completeness. The investment securities and strategies discussed are not suitable for all investors. Recommendations are of a general nature, not based on knowledge of any individual's specific needs or circumstances, and there is no intent to provide individual investment advisory, supervisory or management services. Unless otherwise noted, all reported or projected results (1) assume reinvestment of interest and dividends; (2) are net of any applicable management fees and transaction costs; and (3) do not reflect any effect of taxes. Past returns, whether actual or hypothetical, are not indicative of future results, which will be different from those of the past.