Through a series of simple steps MoneyShow’s Tom Aspray teaches you how a weekly review of your 401k holdings can help you allocate your nest egg in the best performing funds
Most of my regular readers are active investors or traders, but many also have a retirement plan such as a 401k. Over the years I have found that even astute investors do not spend as much time or effort allocating their assets in their 401k plans. This, I think, is a missed opportunity.
I use some of the same techniques that I use on stocks or ETFs to determine how my 401k should be invested. This is something that anyone can do without the use of sophisticated or specialized analysis programs.
The goal of this article is to demonstrate that just a weekly or bi-weekly review of your 401k, using free Web sites, can dramatically improve your results. At the end of the article, I will give you a series of nine steps that you can follow on your own to increase the odds that your 401k will be invested in the market leading funds.
In this discussion, I will focus on some of the Fidelity funds that are available in my own 401k. The same process can, of course, be applied to other 401K providers as the data on most of their funds is also available.
I have included 13 different funds, as well as the Spyder Trust (SPY), which is a widely followed proxy for the S&P 500. There are 26 funds, including a money market, in my plan. These funds are ranked in order of performance with the Fidelity Select Biotechnology (FBIOX) leading the list, up 42.5% so far in 2012.
The table reflects a wide range of performance as the difference between the 42.5% gain in the Fidelity Select Biotechnology (FBIOX) and the 4.8% gain in Fidelity Select Energy (FSESX) is 37.7%! The Fidelity Spartan US Bond Index (FSITX) has gained just 4%, but if you were in the Spyder Trust (SPY) you would have made over 12% more.
Admittedly this has been a great year for stocks, so in other years the spread may not be as large. It is not a bad idea to have some of your portfolio, say 5% in a benchmark like the Spartan 500 Index Fund (FUSVX) or Spyder Trust (SPY). But if you had a heavier weighting in the Fidelity Select Financial Services (FIDSX) or Fidelity Select Health Care (FSPHX) you would have done over 8% better than SPY.
The performance data on the table is from Morningstar, which is one of my favorite sites for fund data. By just using the quote function you can get a wealth of data as this link to the quote page for Fidelity Select Biotechnology (FBIOX) illustrates.
NEXT PAGE: FBIOX and the S&P 500