Basics of Investing

Question: Which is the best investment option my 401K offers?

I can distribute my contributions between:
-Met Life Stable Value
-Vanguard LifeStrategy Conservative Growth Fund
-Vanguard LifeStrategy Moderate Growth Fund
-Vanguard LifeStrategy Growth Fund
-Fidelity Equity-Income Fund
-Vanguard Institutional Index Fund -Institutional shares
-American Century Ultra Fund – Institutional class
-American Century Value Fund – Institutional class
-T. Rowe Price Mid – cap growth fund
-Franklin Balance Sheet Investment Fund – class A
-Pioneer Growth Opportunities Fund – class A
-American FundsSM EuroPacific Growth Fund – class R5
-Lowe’s Stock
Or i can put 100% in any of listed above. I’m new to stocks, investments so I would appreciate your advice. Bottom line in what should i invest?

Answer: I bet you must work for Lowes. Put a portion into Lowes for sure. Maybe 15-25%. There are two reasons to do so. 1. Shows management you are an investor in Lowes. 2. It is a good investment.

The Vanguard Life Strategy Growth Fund is not a bad choice. It would not however be my 1st choice but not my last either. Maybe 25%.

Fidelity Equity-Income is a somewhat mediocre fund (not too bad and not too good) but reasonably sound with large cap holdings that pay dividends. You could do worse. Maybe 25%.

The T. Rowe Price Mid-Cap Growth fund is the best of the lot in my opinion. It is also closed to new investors. You are fortunate that you are able to invest in it as an option. 25%. It however will also be the most likely among the Options to possibly suffer a significant loss in a bear market. If that prospect does not appeal to you, perhaps you should avoid it.

American Funds is a premier mutual fund company but does charge a significant sales charge on their class A shares. I do not know about the class R5. This fund is your only option for non-Us Investments. So despite the sales charge, it should be included in your portfolio to provide you with appropriate geographic diversity. Its holdings are solid large cap companies that are world class. 25%.

One of your responders suggested not putting more than 10% in any one investment. Generally, that is good advice for individual stocks, especially when considering an investment in Lowes stock. It does not apply to mutual funds to such an extent because by their nature of diverse investments. In your particular case a 25% contritubion to Lowes although it does not follow this guideline, would be appropriate because of the possible contribution to your career.

I am not particularly please with the selections you are being provided. Each of the companies that I mentioned above have significantly better offerings for 401k accounts. In particular for example the Vanguard Global Equity Fund would be a fine choice for any 401k account. I do not know how a company selects the funds to offer their employees. I sometimes believe that they are perhaps offered kickbacks to offer certain funds.

Maybe you should suggest to your management that the Vanguard Global Equity Fund would be a much better offering than most of the funds they are currently offering. If they should decide to do so in the future consider swithch the Euro-Pacific portion to that fund.

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