I participate in a deferred comp program at work that is run through the state. I have a list of mutual funds I can pick from to invest my money in and can split it up. So if I contribute $10 a paycheck I can have $4 go toward one mutual fund and $6 to the other.

I currently have my money split between 2 with one having returns significantly higher than the other. This has me wanting to transfer a big chunk of money into the better performing fund and weighing future contributions that way as well.

When I research some Lipper and Morningstar ratings the lesser performing fund gets higher ratings. The Lipper leader rating is higher and the Quartile and Percentile rankings are higher, yet the historical returns are higher for the other fund. Should I put my money into the higher producing yet lower rating fund going forward?

Check Morningstar's risk rating on the two. I suspect the higher rate, lower performing stock is lower risk, and the other is higher risk.

no one can predict the future.

best thing is to look at the SPECIFIC holdings within the two funds and see how they stack up with the way YOU want to be diversified.

also -- check the underlying fees / expense ratios of the funds in question.

IMO you should have a nice blend of capitalization exposure. large / mid / small

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I don’t see any age or timeline. I’d lean towards a lower expense stock index fund to start. There may be several, a ‘total market’ or ‘S&P 500’ index fund would work.

When you hear about great returns with any fund, check the total return for the index with that period.

What tatortodd said above, it is all about risk. The lower the return with a higher rating, is most likely very conservative in their investing strategy, and looks for a certain percentage return as their goal. The other is probably very aggressive and makes trades accordingly, chasing the high flyers as they come around. Same time while investing in speculative companies that could either hit or miss at any point.

Research and make yourself as comfortable as you can with your knowledge of the options available, and make the choice you are comfortable with.

ok, the risk/conservative makes sense.

The higher rated fund is tailored toward a 2030 retirement year so I guess it is getting more conservative. I can retire from my current job then but will definitely not retire for good. Maybe I made a mistake by choosing the 2030 retirement date fund but I was a lot less educated than I am now (though clearly I don't know too much currently).

I will look at the small/mid/large cap thing. I've never thought about that before.

Given the state of the economy, the future as far as political state go, and where the DOW is now, I'd tend to be at least 50% in a conservative fund IF you're planning on retiring in 9 years.

If you want to be in the market, put your money in a market index fund. Historically the market outperforms almost all managed funds. Also, don't judge funds by how they performed during a period of new stock market highs-it really tells you nothing about the fund.

Taking money out of one fund and switching to the other is like changing lines in a grocery store. If you change lines to the one that seems to be moving, there is at least an even chance that it will slow and the old line starts moving more quickly.

If I had the two funds you describe as a choice, I'd probably put half in one and half in the other and then move more into the conservative fund as time marched on. slowly moving towards conservative is widely accepted. Someone in their 20s might get by with most of the money in the riskier fund, but would still want some in the conservative one...

quote:

Originally posted by tatortodd:
Check Morningstar's risk rating on the two. I suspect the higher rate, lower performing stock is lower risk, and the other is higher risk.

Great advice - Morningstar is definitely the place to use IMO

1) understand what the stated objective is for each fund - small cap, growth, index, etc. Your 2030 fund is geared toward someone retiring at 2030 so I can bet it's a mixture of bonds and stocks.

2) from the fund's objectives, you can get a sense of the risk and volatility involved. I would be surprised if your employer does not have literature to guide you through your decisions.

3) It comes down to how much risk/volatility are you willing to expose your savings to and can stomach relative to how much you want to have in 2030.

Assume the 2030 fund is relatively safer between the two as they will titrate the mix the closer you get to 2030. At your savings rate and projected interest rate, will you end up with sufficient funds in 2030? If you project more than enough, then you don't need to expose yourself to more risk or volatility.

If it won't be enough, then you would have to expose a portion of your money to more risk. But you can choose a mix of risky products that counteract each other.

Actually, I just figured this problem out. If you knew enough of what you were doing, you wouldn't be asking here. (And it's no slam; I've asked questions here before.) Everything that I've been trying to tell you on how to manage your investment, the 2030 fund is already doing so. That's the point of the fund - how best to invest for someone expecting to retire in 2030.

For total peace of mind, stick everything in the 2030 fund. It will get you to 2030 with relatively minimal volatility while the other fund may get higher returns but it can also lose money.

If you want to get a piece of the more volatile action, stick between 70% to 80% in the 2030 fund and the remainder split into the other fund or even a second one. (Do this for the account balances and future contributions. Then every year, just make sure you have the same split in the account balances.

Good luck.

"Mutual Fund" doesn't convey anything about what an investment is trying to do, so it isn't enough information to provide, to get you any useful advice. "Mutual fund" just says how the investment is organized, sold, and taxed. There are mutual funds that do almost anything under the sun. The target date ones tweak their portfolio towards lower-risk/lower return bonds as their 'target date' approaches.

Lower performance could mean:

they are taking on less risky investments, and doing OK given that less-risky stuff generally provides lower returns,

-or-

it could mean that they are taking on risky investments and doing poorly with them.

TL: DR - You'll get much better advice if you listed which mutual funds you are choosing among.

It would also help if you could give us the actual fund names, your age or how many years until you plan to retire...

quote:

Originally posted by smlsig:
It would also help if you could give us the actual fund names, your age or how many years until you plan to retire...

This. Some brands are better than others. Vanguard has been my favorite brand overall, but some others are good too. Then there are some Vanguard funds I wouldn't touch, so one has to be careful as you dig into each individual choice.

Then there are those fund brands that suck wind. Or more like suck fees.

THen there's the matter of what choices you actually have. need to see that list.