Fidelity Freedom Income (FFFAX) is an interesting retirement fund. The problem is that no more than 20% can be invested in equities. While this may appear to be safe, it limits investors' upside. And as the average lifespan increases, the retirement savings that many baby boomers expect to see them through old age are falling short in many cases.
|Funds that can take a toll|
|Fund||Category||Expense ratio||3-year return (annualized)|
|Vanguard Long-Term Treasury Admiral (VUSUX)||Long government||0.1%||3.9%|
|Fidelity Freedom Income (FFFAX)||Retirement income||0.0%||4.1%|
|Prudential Jennison Natural Resources (JNRRX)||Natural resources||1.4%||3.6%|
|Calvert Income B (CBINX)||Intermediate-term bond||2.1%||2.4%|
|Putnam Global Health Care A (PHSTX)||Health||1.3%||4.2%|
Prudential Jennison Natural Resources
For the past decade, commodities have been a tremendous investment. As investors continue to pour large sums into natural-resource mutual funds, more 401k plans are offering these options.
While it is a good idea to have exposure to hard assets, there should be some restraint. Commodities can be quite volatile. Also, they have been prone to long-term bear markets, as was the case from 1980 to 2000.
Prudential Jennison Natural Resources (JNRRX) has benefited from investor interest in commodities. The fund has $6.4 billion in assets and had a 34.7% return last year, in part due to its asset mix -- roughly half of the fund was invested in energy and the rest was in the mining sector. A good year, but the fund has certainly been a wild ride -- in 2008, it lost 53% of its value.
Calvert Income B
The expense ratio is a measure of what it costs an investment company to operate a mutual fund. On its face, a fund's expense ratio looks small. But if it reaches 2% or higher, it can eat into returns.
The impact is often the most significant for bond funds, which tend to have lower returns than equity funds.
Calvert Income B (CBINX) is an intermediate bond fund with an expense ratio of 2.1%. Over the past year, the fund returned 4.8%, but over the past three years, the average annual return was just 2.3%.
When you do the math, you see that returns on a high-expense fund like Calvert Income aren't as healthy as they should be, thanks to the fees.
Check your 401k funds to make sure you're not in one of these high-expense funds.
Putnam Global Health Care A
Specialized funds are in another danger zone for investors. These instruments focus on a particular industry or country. The problem is that the volatility can be wrenching. It can be extremely difficult to time the ups and downs in these funds.
Putnam Global Health Care A (PHSTX) focuses on health companies with strong growth prospects.
Unfortunately, it has been mostly dead money for the past decade, earning an average annual return of only 1.7% over the period.
This article was reported by Tom Taulli for InvestorPlace.
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"Keep in mind that the fund has an average maturity of about 13 years. This means that a 1% increase in rates will reduce the portfolio by a whopping 13%." That is true if DURATION is 13, not MATURITY.
If writer got that wrong, what else is wrong in the article??
The fund has returns of 19% for 10 years. Why would you avoid it? Nobody said you had to put all your money in your 401k into this fund. Put 20% of your money in it and the other 80% in other funds. The fund is not diversified, but that doesn't mean that you can't diversify your 401k by puttine 20% of your money in this fund and 80% of your money in other funds in your 401K.
Also, haven't stock funds had long bear markets and one year drops almost as big as this fund. Stocks lost 90% of their value from 1929-1932. Stocks averages didn't go anywhere from 1966 to 1982 and lost a lot of money when adjusted for inflation. The nasdaq index was 5000 in 2000 and has not come close to getting back to even in over 10 years. Bond fund were terrible during the 1970's. and there is good chance they could be terrible for the next ten years. Commodities are priced in dollars. What has changed that gives you any indication that the dollar won't continue to lose value and commodities gain in price as demand is increased by governments around the world as currencies lose value.
'Someone' writes: "The fund has returns of 19% for 10 years...."
I think he/she meant to say: "The fund has HAD returns of 19% for 10 years."
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