We have a very good 401(k) program at work with a generous matching contribution. I should say that the matching contribution is what makes the 401(k) program so nice.
The part of the program that’s not so nice is our selection of funds. We have a decent selection of funds in terms of diversification (meaning each segment like small cap, large cap domestic, foreign equity and bonds are represented). The problem is the funds themselves are not very good.
The best fund we have is the Dodge & Cox International Stock Fund (DODFX). PDF Fact Sheet for DODFX
It has a pretty good expense ratio (.65) for an actively managed fund and its done very well (15.86) since inception (2001). However this is about the only highlight in an otherwise disappointing group of funds.
Most of the available funds have either very large expense ratios (over 1 percent) or pretty lousy performance or worse they might have both. I’m currently reading The Intelligent Investor (the updated version with the modern commentary) and I’m finding index funds much more attractive. Graham himself was in favor of index funds for average investors.
I’d love to see and index fund (actually several) added to our choices. We have an employee idea committee and I’ve suggested adding a whole market index fund, a foreign index fund and a bond index fund. I’m hoping we can get that accomplished.
Jason Zweig, the former Money magazine editor who authored the comments in the updated version of The Intelligent Investor advises anyone without these options in their 401(k) to rally hard for them. I’ve set the ball in motion; we’ll see where it goes.
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Comments
3 Comments so far
Good for you! While you are at it, you may want to ask about ETFs (Exchange Traded Funds). These tend to have even lower expense ratios than their index-based mutual fund peers. That said, few providers offer ETFs in their 401ks today — likely because the providers make more money on mutual funds than ETFs and/or don't know how to avoid charging transaction fees that are typical in retail.
ShareBuilder is one of the few 401k providers that gets this to date, but they are targeting smaller firms to date.
Perhaps by adding ETFs into the conversation they'll buckle and at least get you index-based mutual funds.
Good luck,
Stuart
Stuart,
Good point about the ETF option. There are a few of us in my department who are rallying for the change, hopefully we will get something done.
Thanks for another great comment!
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