A Personal Finance Guide-Learn to Manage Your Own Retirement and Investment Accounts!

I’ve decided to start this personal finance blog to empower workers like myself to take control of their finances.  I always felt a bit overwhelmed when it came to managing my money especially retirement savings.  The message that I should be saving a portion of my annual income in a 401k did sink in, however, I did not put much effort into managing my nest egg.  I make a good salary as an engineer but all through my twenties and thirties I’d save just enough to get the company match-typically 4-6% depending on who I was working for…and that was about it. 

Whenever I changed jobs, overwhelmed by learning my new role and a mountain of HR forms, I’d sign up for the company 401k.  And then I spent a total of 5 minutes determining where to put the money that would ensure my security for the 30-40 years after retirement.  I usually invested in target date funds per my age (2040/2045).  I never looked to see how my investments were performing (or cost) other than quick glances at annual statements.  And I was slow to move stranded 401k’s from old employers (who often liquidated my shares or put me into high fee active funds after leaving employment-thanks!).  I even committed the cardinal investing sin of cashing out one account to buy a house-at least it wasn't to buy handbags…

Then around September 2016 I decided to rollover an old 401k into an IRA at Fidelity where I have my current 401k.  At first I struggled to decide where to invest so I started doing research and came across the Wall Street Journal’s series on passive versus active investing.  Essentially, it is a rare investor who can beat the market over long periods of time so you’re better off investing in cheap index funds rather than high fee actively managed funds or picking risky individual stocks.  I was floored!  I never paid attention to how much the actively managed mutual funds I was investing in were charging me.  And I’d definitely never studied how the funds had performed against their benchmarks (e.g. the S&P 500).  So I plotted, via Google Finance, my target date fund's performance since I’d started at my employer in October 2013.

Above is a graph of my fund’s performance versus the major benchmarks-the S&P 500 (Ticker: INX), the NASDAQ (Ticker: IXIC), the Russell 2000-Small Caps (Ticker: RUT), and the S&P 400-MidCaps (Ticker: SP400). Note: I’ve overwritten the real name of the fund I was in with ticker “EX45”.  As you can see my target date fund performed dead last against the benchmarks.  Since I have been with my company-a little over 4 years, my fund returned 12.49% versus 52.89% for the S&P 500, 77.26% for the NASDAQ, 36.79% for the Russel 2000, and 45.46% for the S&P 400 Midcaps! 

Trust me when I realized this I was more than disappointed-I was furious.  Digging deeper into how my fund had performed since inception in 2011 the story is worse!

Then I learned that the fund was charging me .67% in fees ($6.7 for every $1000 invested) annually for the privilege of not making any money (and even losing it in 2015).  When I compared this fee to .035% for a Fidelity S&P 500 index fund (35 cents for every $1000 invested) that was all the push I needed to move my money to passive index funds.  Index funds just seek to replicate the market-not outperform it like my actively managed target date fund.  Index funds have lower fees because they are run by computer algorithms which just replicate the market portfolio e.g. the underlying stocks in the S&P 500, Russell 2000, or Nasdaq.  Actively managed funds are run by teams of highly paid asset managers, whose salaries and expenses (in addition to a brokerage firm profit markup) you are paying through the fund's fees, whose task is to outperform the market.  I decided that if my highly paid fund manager wasn't even matching the market-why shouldn't I just buy the market through index funds and pay lower fees?   So I went on a long journey to educate myself on how to invest passively. 

To take a look at how the funds in your portfolio have performed overtime.

1. Get the ticker of the fund(s) in your 401k (you can look it up via your company’s 401k portal, brokerage Fidelity, Schwab, etc., or periodic statements)
2.  Go to the Google Finance website
3.  Search for your fund’s ticker-in this example I’m pulling “PIMCO All Asset Fund Class D” ticker PASDX (which I’ve never owned-just randomly selected).
4. Use the "Compare" box (under the price $12.15) to pull in “.INX”, “.IXIC”, “RUT”, “SP400” to pull in the S&P 500, NASDAQ, Russell 200, and S&P 400 Midcaps, respectively
5.  Select the time period over which you want to evaluate your fund 1 year, 5 years, 10 years, All, etc.
6. Decide if you are happy with the relative performance you’ve been getting-if the answer is no take the action to educate yourself on how to manage your retirement savings.