Conference 7.286::digital_investing

There are at least two fees involved. Benefits Express gets paid. I guess the
claim is that their fee is paid by DIGITAL. Then, each mutual fund has
management fees. These are expressed as a percentage of assets, with the
national average for mutual funds being in the area of 1.5%. These fees are
detailed in the prospectuses which can be requested on the BE touch tone
system. 

I believe that such mutual fund expenses are deducted from the net asset value
of a fund, and the performance figures of a fund are net, after they take
their cut. If I remember, the expenses of our 401(k) plan funds are rather low.
Index funds are expected to have very low fees because there is no staff of
security analysts/researchers being highly paid to throw darts at the Wall
Street Journal.

This is what I believe to be the facts but it may have no relation to actual
truth. I'm sure corrections and amplifications will be forthcoming.

I think some of this could be confirmed by those who track 401(k) fund
performance with PC software. They should be able to confirm that what they end
up with in their accounts is consistent with the performance reported by the
fund, I would think.

    The only facts are that Stock Fund B and the International Fund (Putnam
    Voyager A and Templeton Foreign) have loads if you were to purchase
    these from anyone else.  We don't pay loads.  I suspect that Digital 
    doesn't pay the load either.  If you walked into one of these 
    companies and said my employees plan to invest several
    hundred million dollars in your fund, you won't charge them a load
    either. 
    
    All these funds have yearly expense ratios.  All mutual funds charge a
    yearly expense.  The expense covers management fees, admin fees, etc. 
    These are borne by plan participants, namely, you and me.  Notice that
    our funds performance as stated by BE is exactly what the funds
    performance is stated in any publication.  If Digital was paying those
    fees, our performance would be better.
    
    This is not bad.  In fact, we have been able to buy at least two funds
    which normally have a very load with zero load.   

I think .1 and .2 agree. As for loads, isn't that unheard of in a 401(k) plan?
Can you imagine the screaming that would ensue if DIGITAL announced a new fund
with a 3% load? 

Several weeks ago I read, probably in Benefits Bulletin, that new funds are
being considered for the 401(k) plan. I'm surprised no one has commented on that
in here (or maybe I missed it). Can the employees influence that? 

If our 40l(k) plan were to give us free choice from any one fund family (if
that's possible), I'd choose T. Rowe Price or Vanguard. The first because they
have so many high-performing, lower risk offering, plus a good selection of
offerings across most all asset classes, and their cost structure is good, and
the latter because they are the low cost leaders in the industry and also have
a wide choice.

re>                <<< Note 474.3 by UNXA::ZASLAW "Steve Zaslaw" >>>
>Can you imagine the screaming that would ensue if DIGITAL announced a new fund
>with a 3% load? 

Well, if the fund were one of the very few that I already own that have a 3%
charge, *I*, for one, would scream "Thank you".  Blind paranoia against loads
is poor financial analysis.  Decide what kind of investment vehicle you are
looking for and then run the numbers net all expenses; operating, 12b-1, and
sales charges.  Yup, the ability to purchase Fidelity Home Finance, for 
instance, through my 401K would be very attractive to me.

Dave

    I'd rather see them open it up to a regular 401K brokerage
    account, so we could buy securities as well as mutual funds.
    Schwab already offers this service for companies' 401K plans.
    

>Well, if the fund were one of the very few that I already own that have a 3%
>charge, *I*, for one, would scream "Thank you".  Blind paranoia against loads
>is poor financial analysis.  Decide what kind of investment vehicle you are
>looking for and then run the numbers net all expenses; operating, 12b-1, and
>sales charges.  Yup, the ability to purchase Fidelity Home Finance, for 
>instance, through my 401K would be very attractive to me.

I would feel much better if you hadn't used the terminology "blind
paranoia", especially as you seem to be referring to me. I take it unkindly. 

Anyway, since past performance is no guarantee of future performance, and even
the correlation is weak, I assume you're saying that one should figure out how
many years one is going to be in a fund and if the total return over those
years in a load fund, with certain assumptions as to performance, beats the
total return from another, no load fund performing the same, then go with the
load fund.

I think one will find that the no load often wins, especially in the less
expensive fund families like T. Row Price and Vanguard, where total annual
management fees are often <= 0.75%, sometimes half that in Vanguard, and there
are no other fees. 

I note that Consumer Reports, which has some financial expertise, this
month reports on mutual funds. They did not even rate the load funds, presumably
because they felt investors are well advised to buy no load funds.

There may be instances when it's sensible to use a load fund, but I think a
strong preference for no loads makes good sense. I was in Magellan for many
years and it was a great investment.  If you're looking at a load fund that's
done very well year after year, and you trust the advisor to continue it, yeah,
sure, buy a load fund. Nowadays, there are many many no loads with superb
performance histories. I don't think choosing funds only from the universe of
no loads is evidence of mental disease. 

Anyway, big 401(K) plans don't have to pay loads; since this is
DIGITAL_INVESTING, not MARKET_INVESTING, I guess the issue's kinda moot here.

Steve,

My sincere apologies if my choice of words was unkind; it was not intentional.

Far too much is made of excluding funds simply because they charge loads;
front, back, sideways.  My intention was to help shed light on: picking the 
right investment for you in your financial situation; comparing performance 
against similar funds; make a selection on what is important.

As for the comment on "past and no indication etc;"  That phraseology is in all
funds' marketing liturature because the SEC makes them put it there. Past 
performance does, indeed, provide some valuable insight to the future 
performance of a mutual fund.  What you look for is how well the fund met 
it's stated objectives.  You ask how long the fund manager has been in place.
What you should NOT do is chase Returns. Far too many people blindly put 
their money in the latest top performer.  And then pull it out when the 
market that that fund invests in goes down.  As in Buy High, Sell Low.

At any rate, as for performance of load vrs no load, I think the question is
somewhat of a Red Herring.  I am not a "buy and hold", not a "strictly no
load", not a "chaser of hot funds".  I know what markets I want to invest in
and what I want my portfolio mixes to look like.  I research investment
vehicles (not just funds) to find the ones that meet my objectives.  I spend
a lot of time (re)-examining them to assure that they continue to meet my
needs.  And when I find better vehicles, I improve the portfolios.  Your citing
of Magellan makes my point.  As long as Lynch ran the fund, you could pretty 
much bet that you would continue to get what you had been getting; analysis of
fundamentals combined with intelligent risk-taking in a fund that was broad
across most of the market.  His replacements continued to demonstrate that they
were unable to do what they said they would do.  Buyers_and_holders lost - 
direct loss as well as opportunity losses.  When it became obvious that the
fund was not going to continue to do what it promised, it should have been 
time to get out.

I own a mix of load and no load funds.  And as a gauge, it is my goal 
(consistently met) that the NET of my investment activities will beat the S&P 
500.  The last few years, it has taken a LOT more time to keep that up; and 
I have had to put more into funds that charge loads.  And I continue to
feed Vanguard Health and Fidelity Home Finance.

And as for this not being a good conference for this discussion, remember that
we were musing about having 401K alternatives.

Again, sorry if my comments were taken personal.

Dave

    >I research investment vehicles (not just funds) to find the ones that
    >meet my objectives.  I spend a lot of time (re)-examining them to
    >assure that they continue to meet my needs.  
    
    Nowadays you can't buy a stereo, a bicycle, a car or even a blender (!)
    without doing research.  This has become a maxim in our world, so it
    only makes sense that the same would apply to quote-investments-unquote.
    
    But I still have a lot of trouble with statements like the above (not
    trouble with the person saying it, but rather with the sentiment, which
    is fairly widespread).  Are there any other objectives when it comes to
    quote-investment-unquote besides making more money than you start with?
    
    I know that in some cases a person or group will actually invest in a
    particular company or portfolio specifically to support an activity,
    for example companies that are considered "green", or perhaps to
    support the company they work for, such as *Digital* (relevancy to
    topic!).  But with such exceptions noted, I'd guess that 99% of the
    world of investors have only money as their goal.  
    
    In fact, I see very little of buying of DEC stock to"support the
    company".  Yes, I know some do.  In a sense, I do, cause it just keeps
    piling up, and I never get around to selling it (another peeve:  the
    exponetial complications of a tax form with gains, vs. one without).
    But I don't see support of ones livlihood as a prime motivation for
    "armchair" investors.
    
    I'm not judging the idea of making money.  I wouldn't mind a little
    more, myself.  But the statement "meeting goals" sounds so lofty, it
    tends to give credibility to what is actually legalized gambling.  I
    heard the term quote-investment-unquote all through my life, without
    ever really knowing what it meant.  When I found out that it meant
    gambling my hard earned cash on someone else's dream (if you're so
    lucky) in hopes that things work out for them, with the very real
    possibility that you might not only *not* make money, but might
    actually LOSE what you put in, well I really felt cheated.
    
    It just really concerns me that nowadays we are legitimizing this
    process in every possible way, such as tax exempt 401-Ks, etc.  It
    boggles the mind (mine, anyway) that social security is getting such a
    black eye in deference to tax breaks on gambling..  At least SS made
    the attempt to insure that a lifetime of labor would not result in
    being destitute because of a twitch on a graph in a computer somewhere.
    
    I can't possibly imagine a less sympathetic place to post such a note,
    but I just can't get over how seriously we seem to be taking this
    *investment* stuff when its our futures we're gambling with.
    
    Obviously, to be in this conference in the first place,  I have
    investments.  All 401-Ks.  Out of necessity more than desire.
    
    BTW, I do understand that *theoretically* you select a fund based on,
    among other things, the time over which you have to invest your money. 
    But in case I didn't say it loud enough, we *all* want the most we can
    get as quickly as we can get.  And the way we do it is throw the dice
    with our hard earned cash and pray.  Seems real crazy.  I guess I must
    be a communist at heart!  :-)
    
    jeb
    

    2 cents maybe 3
    
    There is always a risk.  Put your money in a bank and if you have more
    than 100,000, and the bank goes out of business you kiss your uninsured
    money good-bye, and if by the time you retire, if you don't have more
    than 100,000, then you will not be happy with Social Security unless
    you are minimum wage right now.  Used as an example (there are obvious
    ways to avoid this risk, or most of it at least).
    
    Spend it now, and you have no future risk on the loss of your money. 
    Of course you do risk your life style in the future, but that is your
    trade-off.
    
    The question is how much risk.
    
    Play 1 or 2 stocks and it is more like throwing the dice.  "Putting all
    your eggs in one basket" is the phrase.
    
    Use severl mutual funds and it is more like being the casino.  The
    house always wins in the long run.  In this case the mutual funds
    spread the risk over lots of stocks.  Some loose, but more win (over
    the long term).
    
    But you can still invest in bonds, T-bills, fixed return investments,
    etc... which reduce the risk to very low levels, but you just don't get
    as much return.  Just make sure that you are beating inflation or you
    will actually be losing money.
    
    ---
    
    The one thing that most people forget is "The Power of Compound Interest"
    Regardless of which investment vehichle taken, if the money is
    re-invested the grow in the investment, it has a significent influence
    on the final out come.
    
    ---
    
    I know this has not been a good rebuttal, but I would rather invest for
    my future.  I'm happy when I get luckly and make a large win, but don't
    push the risk levels.  I have money spread across multiple investments. 
    most mutual funds, some bonds, some fixed, and a few stocks (like
    Digital).  While any one of them can take a dive, the some of the parts
    has given me a much greater return, then doing nothing, or just
    spending it.
                                                  
    By investing my money, I have gone from draining almost all my assets
    when I purchased my home (12 years ago), to having a very nice chunk of
    change tucked away (not counting the value of my house).  I expect to
    much better before I retire using conserative estimates of growth.
    
    Going back to "The Power of Compound Interest", more of my money is
    from interest/growth earnings, then from my direct contributions.  And
    by the time I retire, the direct contributions are going to be a small
    part of my nest egg.
    
    ----
    
    Again, if you spread your money around and not put it all in one
    basket, you start to get "house odds" at the gambling tables, and the
    house always wins.  If you place individual bets, then treat it like
    gambling, and one risk the amount of money you would in Vegas, and no
    more.
    
    					Bob Harris