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{ 4 comments }

Mike H. June 23, 2009 at 5:35 pm

This is a fantastic, informative, LOGICAL, website. Thank you very much for producing it, especially for those like me who are financial novices. I am now eligible for a 401(k) through my employer, and must choose among a set of mutual funds. They are all actively managed and have operating expenses between 1.2 and 1.97. Besides a bond fund and a conservative asset maintenance fund, there are no other choices for equities such as index or low turnover funds. They offer several pre-packaged “models” of fund allocations based on risk tolerance. I already have an Target-date IRA with Vanguard. I’m trying to figure out the best approach. Do I maximize my employer’s match with the 401(k) and choose just the funds with the lowest operating costs, even though they are still high cost and actively managed, or do I put that money into the index funds in my IRA, missing out on the employer match? Perhaps you don’t give advice like this, but hypothetically, what would make the most sense? Thanks again for your very informative articles.

Mike June 23, 2009 at 5:43 pm

Hi Mike.

Happy you like the website.

In most cases, the order of priority for retirement investing is something to the effect of:
1) Take full advantage of employer match (generally, funds would have to be really bad to negate the immediate +100% return generated by a dollar-for-dollar employer match).
2) Max out your IRA (Roth or Traditional, depending upon how your current tax rate compares to the tax rate you expect during retirement)
3) Come back and max out your 401(k)
4) Invest in taxable accounts.

Tim Wright July 25, 2009 at 5:43 pm

Hi,

I know that you value Index Funds, but I have objections on religious grounds. I would not want to own media, drug companies that make RU486, etc.. Have you ever done any research on socially conscious funds with a Christian angle. Appreciate and enjoy your insights.

Tim

Mike July 26, 2009 at 7:18 am

Hi Tim.

The problem with most socially responsible funds is that their expense ratios are obscenely high. (Plus many of them carry sales loads on top of their high annual expense ratios.) This link has a list of many Socially Responsible Funds and their expense information.

As you’ll see listed on that page, Vanguard actually has a socially responsible (domestic equity) index fund, and it’s expenses are by far the lowest I’ve seen on any fund that purports to screen companies based on ethical criteria. You can find more about the fund here.

As to filling out the rest of your portfolio, I’d imagine that a U.S. Treasury index fund would be satisfactory in that it would hold no companies whatsoever, including ones to which you’re ethically/morally opposed. Unfortunately, I’m not aware of any international equity socially responsible index funds.

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