It’s an awesome time for me. I finally get to restart my 401k! It feels like forever when, at my last job, the 401k plan was terminated because of bankruptcy. The new company offered a 401k, but I figured I was going to a new job very soon, so there was no sense in starting a new account for a few months of saving. Then, my new employer brought me on as a contractor for six months, then required that I be there a year before starting a 401k. So I guess it’s not forever, but probably close to two years.
And that’s a shame because those two years have been great for the market comeback. But no sense in worrying about the past – time to plan for the future. And this is where I discover some terrible truths. I’m sure it’s not exclusive to my 401k plan; everyone must have this in some way. The problem is, you have no idea where your money is going.
Now, I don’t consider myself a savvy investor. I know enough to get by, but I don’t dig too deep. My current, simple goals are to be in funds with a low expense ratio and a high yield. I have decided to exclude any funds that do not build themselves. In my closed-off 401k funds from previous employers, I watch the values go up and down, but the quantities remain the same. My only hope is to sell when they are high. Now, I want to see the quantities climb as well.
So with this goal, I study my options -and boy do I have options. There are nearly 30 funds to choose from. So, step one for a new investor is overcoming the sheer volume of choice. I have dedicated tonight to be my night of research. I then download the information packets for each fund. I then discover that the info packet doesn’t have any real information. It tells me the Morningstar Risk/Return, the past performance, the top holdings, and the breakdown of holdings by sector. This doesn’t serve my needs.
So I search the internet for the fund name so I can get the ticker symbol and come up with no matches. This is because the fund I am offered is a “fund of funds”. This is how it is described:
The Investment Information section tells you what funds this fund invests in. And fortunately, it is only one fund, but it may be nested two levels deep, I don’t know for sure. But searching on the inner fund gets me the ticker symbol and the information I need. So, step two for an investor is to research the funds within the fund being offered.
Again, I don’t consider myself to be savvy, but I can’t conceive an average worker going through these steps and understanding that terrible paragraph describing whatever it was. To a further degree, I can’t even count on the ticker symbol giving me the info I need, because what I am able to purchase is just a wrapper for that fund. There’s no guarantee I’m going to get anything out of it. The inner fund price could have a price of $8/share and give a 3% dividend, while the wrapping fund could have a price of $12/share and not give any dividend.
This is why I’m devoting so much time to research.