Hello–I’ve spent the last three years as a consumer personal finance journalist. No axe to grind at all. Totally objective. Yes, some mutual fund families are definitely better than others. Some of them downright suck.
I’m assuming you’re happy with your bank. The only full service bank I absolutely despise with a passion right now is First Union Bank. They will rape you with fees.
My bank is Bank of America. Not that they’re great, but they’re ok. I’ve never had problems with them I couldn’t resolve, and I can always find an ATM. I trust them more than Citigroup.
As for mutual funds, assuming you’re young and make less than about 40k per year, you’re probably better off with a Roth IRA than with a traditional IRA.
Here’s what you do:
Scrape together a few month’s bare bones living expenses and keep that in a saving or money market account. Let your comfort level be your guide as to how much to save. A guide is 3 months or so. Sounds like you’re well on your way, if you’ve wrestled your financial life into submission congrats.
Second: AGGRESSIVELY get debt-free, except for your home mortgage, and maybe student loan debt if the interest is deductible and low.
Third: If your employer matches your 401k contribution, contribute as much as you can to at least pick up the match. (Post your options and I’ll identify the stars and dogs for you, too.)
THEN max out your Roth. THEN go back and max out your 401(k) contribution. (The reason it’s usually best to do it in that order has to do with expected marginal tax rates at retirement.)
If your employer doesn’t match, or you don’t have access to a 401(k), then go for the Roth IRA first. It’s more flexible and for younger investors in the lower income strata, you’ll likely wind up with more money at retirement after taxes.
Now, as for selecting a fund company, that depends on whether or not you use an advisor.
If you use an advisor, expect to pay a sales load. Everybody says they’re evil, but I disagree. Good advice is worth something–especially given some of the breathtakingly bad investment decisions even smart people make on their own.
My favorite load company, all around, is American Funds, no question. For small cap exposure, though, I like Wasatch for growth funds, and FPA Capital for small value. Bob Rodriguez is a helluva manager.
My favorite No-Load companies: I like Vanguard a lot, if you can come up with the 1,000 dollar minimum investment it takes to open a retirement account, per fund. That’s where I keep my own personal Roth IRA: specifically in the Vanguard Total Stock Market fund, which is a really good choice for a first fund. (I’m assuming you’re young here–in your 30s or younger. Write back if you’re not–we’ll talk more about bonds, too).
The pitfall with Vanguard, though, is it has so many freaking funds that a novice investor can get into trouble unless he educates himself on how to build a diversified portfolio. It’s also easy to get overwhelmed by a lot of choices.
To sidestep that, consider TIAA-CREF (www.TIAA-CREF.org).
They only have a few, basic funds to choose from, and you can’t go too far wrong. Low expenses, and their low minimum investment is much easier for new investors to swallow than Vanguard’s. So it’s easy to get started.
I’m not too keen on USAA, to be honest. Overall, I like them as an insurance company. But they just fired almost all their stock fund managers a few months ago in one massive bloodletting. Reason: lackluster performance. Avoid them until their new managers prove themselves. Their S&P 500 fund is ok. They’re ok for bonds. Avoid them for stocks.
As an actively managed alternative to the Vanguard 500 fund or the Vanguard Total Stock Market Index Fund, I like Dodge and Cox Stock.
Fidelity is a fine family, too. It has a lot of the same advantages and disadvantages that Vanguard does. More emphasis on active management. I’d give Vanguard the nod for index funds. I like Fidelity a little better on the Small Cap side, thanks to the strong Fidelity Small Cap (Paul Antico) and brilliant Fidelity Low-Priced Stock (managed by the brilliant Joel Tillinghast.) Low-Priced is closed to new investors now, but it should reopen soon. A portion of my own 401(k) money is invested with Low-Priced.
T. Rowe Price is outstanding overall, as well. Low expenses, excellent managers, good service. Great website. I love the Monte Carlo simulation financial planning calculators.
For International funds (maybe about 10% of your portfolio down the road, but don’t sweat it if you can’t do it right now), I like Harbor International, Oakmark International, Artisan International, and Tweedy, Browne Global Value. (Tweedy, Browne totally hedges its currency risk, where the others don’t, I believe. Unhedged is usually more volatile, but with a declining dollar, the odds are on the unhedged funds outperforming, IMO.)
For loaded International funds, I like First Eagle SoGen, managed by Jean-Marie Eveillard. I also like the Matthews funds for Asian exposure.
Fund companies to avoid: AXP, which is American Express. And avoid American Express Financial Advisors who steer you into AXP funds. They suck. They will get better–AXP is really pulling out all the stops recruiting top managers right now. But why pay the fees?
I’d also avoid Janus. Nothing personal against them–smart people. But they’ve proven they can’t cope with value-led or bear markets. They crashed and burned.
Avoid fund companies associated with brokerage firms. That goes for Merrill Lynch, Smith Barney, Nations Funds (run by B of A), Evergreen (Run by Wachovia), etc. Fees run high, right along with sales loads, performance is mediocre, and their research is suspect.
Avoid sector funds for now (Technology, restaurants, precious metals, etc). Down the road you may want to add a REIT.
Avoid one-trick pony fund houses like First Hand and Munder.
Avoid Van Wagoner.
That ought to get you started. Write back if you’re over 40, though, and write back if you have children–we need to talk about college planning, as well. And insurance!
Good luck!
