My Best Financial Move Of 2013

Year 2013 was a record year for the stock market. The S&P 500 returned 32.39% last year, including dividends.

2013 was an unusual year for my 401K. Even though I did not switch jobs, my 401K switched!

With the new 401K came new funds and I did what any rational person would do. I decided to diversify as much as I could and pick the cheapest funds I could.


Note the crazy expense ratios! Most funds have an ER of more than 1%, which is considered quite high and this is after weeding out the more expensive funds! And some of these funds have redemption fees and other restrictions including a sales load of over 5%!

In short, I tried to make the most of a terrible selection of funds in my 401K. Diversify and keep costs low – that was the underlying motto behind my choice of funds.

But even after allocating funds as shown, I wasn’t too happy. No matter which direction the markets go, I still have to pay those fees!

So after a few months, I decided to tweak my allocation with 3 new goals:

The result?


My 401K returns after I simplified my allocation

Much better than the 22.x% I would’ve gotten with my previous allocation!

What was the tweak?
I moved all my funds to just 2 funds! The S&P 500 index fund which has the lowest expense ratio among all other funds and RGACX which has an expense ratio of less than 1% and the lowest actively managed fund in my 401K. (Ideally I would’ve split it between Total Bond Fund and S&P 500, but bonds would’ve been a terrible choice considering the interest rates).

But wait a minute, whatever happened to diversification?
I’m not advocating against diversification! My approach initially was incorrect – to treat each account as a separate entity – diversification should be across all your investment accounts, not within each account.

Due to my delayed realization, I missed an opportunity to get returns of over 30%, but hey 26% is at least better than 22.x%!

How have you allocated funds in your 401K? How did your 401K do last year?

21 thoughts on “My Best Financial Move Of 2013

  1. Good move. It would be good if you could get the plan administrator to add some more BlackRock index funds.

  2. Fees and poor fund choices hold so many 401k plans back. It’s a shame cause its the #1 way most of us save for retirement! Glad yours changed and offered some better options for you.

  3. Nice job! I returned over 24 percent in my 401k in 2013 so not too bad. With such high market returns everyone should have done fairly well. I’m lucky because my plan offers low cost Vanguard funds and I invest in those.

  4. Those are some pretty poor choices. Good for you for going with the low-cost passive S&P 500 fund. As you said, everyone should spread their asset allocation across all accounts.

  5. Wow!. My 401k S&P 500 tracker has a Expense Ratio of about 0.05%. The fees are a killer as far as long term compounding is concerned. They look more like traditional managed funds. Nice job, nonetheless, but man, the company should be looking out for it’s employees a little better. I’m all in on an S&P 500 equivalent in my 401k. Love the diversification implicit, and mainly love the low cost compounding

  6. That’s the thing I hate about 401k plans – the insanely high fees. My wife’s is a prime example. As I was reading your post, I was thinking about how you should just invest in a few funds and diversify with other accounts, and boom, that’s what you did! I ended up doing the same thing with my wife’s 401k.

  7. I got just over a 30% return last year. I am so glad it was a good one for everyone. Well done you. Here’s to an even better 2014!!!

  8. Good move…keep investing. Here in UAE, we don’t have 401K.

  9. When I started my first job out of college I was given similarly bad options for funds in my 401k. I had the choice of 5-10 funds and the company stock.

    I spent a few days digging into the holdings of the different funds as well as their fee schedule to come to the conclusion that I didn’t want to own any of them! The fees were too high and they were packed full of stocks I wouldn’t want to touch with a 10 foot pole!

    So, I decided that I would put 100% of my 401k into the company stock. I did this for a little over 2 years and saw incredible growth for the company stock which outperformed all of the funds that were available.

    I made sure to diversity my holdings by owning different positions through my Roth IRA and non-registered trading accounts.

    I have since left that job and rolled the 401k into a self directed IRA where I have been able to diversify to my hearts content. It was a little scary having 100% of my 401k in the company stock but since I was just starting my 401k and was able to remain diversified through my other investment vehicles I felt it was the right thing to do to avoid funds I didn’t want to invest in due to their holdings and fees.

    Long story short, it worked out for me investing 100% in the company stock but probably not the most prudent way to invest.

  10. Great return! Now if only our accounts could do that every year :) My strategy is similar… I like Vanguard funds because they provide good diversification (my Roth IRA is in a target date fund), while also keeping the fees very low. It’s a win-win!

  11. I had a 26.5% return on my 401k. But I really need to look more closely at my expense ratios.

  12. These were savvy moves in a situation where you were locked into high expense ratio options. So your move made a lot of sense. Can never go wrong with index funds and low expense ratio funds. You are getting a lot of diversification by just being in the index fund. Please see my comments at your other post as to how to politic for change in investment options.

  13. Nice job switching things up and gaining from it. I haven’t changed my diversification in a long time for my 401k. Most of my money is in a target-date fund and a small amount in an emerging markets fund. I should really sit down and take a second look at it sometime in Q1.

  14. Wow, that’s impressive. I only made ~10% return.

  15. I rebalanced a couple times last year. I’m actually not sure what my return was, I need to check on that. Thanks for the reminder!

  16. Great example and points MC! Wow some of those ER’s are killer. I better dig deeper into my own ER’s. I went the lazy way and chose one of those time target funds. 26% is ok, but a S&P fund would have been in the 30′s. Can’t use hindsight though. Thanks again for the reminder!

  17. That was exactly what I wanted to say when I first saw your original allocation. With only one fund you are already well diversified, so there is no need for further diversification. I think you made a smart move.

  18. Great job going with the low-cost passive S&P 500 fund. Keep up the good work, and I hope to keep on reading these great articles.

  19. I stick with index funds due to the low expense fees. But even if it’s only 1 fund, like the S&P 500, you’re still diversified. Only your exposure to the US equity market is not. But I split mine between large, small, medium cap indicies, and some foreign market funds.

  20. Good move! Those funds will really eat you alive if you don’t pay attention to them :-)

    By purchasing the S&P-500 you’re well diversified. I think your thinking more about asset allocation. Best to have S&P-500, some international, developing, emerging, and bonds across all assets as you pointed out!

  21. I have a similar allocation to you, except I focus on small cap value indexes. Some in the USA and some foreign. And the the SPY. I am hoping it turns out great!

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