Sunday, February 21, 2010

How Good are the Funds in Your 401k?

In my endeavor to accomplish two New Year's resolutions at one time (mainly use my treadmill and read money management magazines), I came across this great tip.

If you want to know if you have a good fund in your 401k, "go to Plug in the fund's name, and site will show that portfolio's percent rank in category. Ideally you'll want to go with a fund that finished in the top 50% of its category over the past five years. This won't guarantee the fund can repeat, but it's at least a sign of sustained solid performance. If you plan lacks choices that accomplish this feat, put your money into the ones that come the closest."

-Money Magazine, March 2010, pg 105


Dr. Mom said...

More information that may help:

% Rank in Category
This is the fund's tax-adjusted total-return percentile rank for the specified time period relative to all funds that have the same Morningstar category. The highest (or most favorable) percentile rank is 1 and the lowest (or least favorable) percentile rank is 100. The top-performing fund in a category will always receive a rank of 1. Percentile ranks within categories are most useful in those categories that have a large number of funds.

Retiring_with_a_Plan said...

If it were only that easy. The funds in your 401(k) are often slightly different than the ones listed at Morningstar and then there are fees, taxes, and much more that come into play. Even performance alone as a measure is suspect.

I discuss this on MomsMakingaMillion radio ( this Friday if you are interested.

Perhaps a better way to find out how good your 401(k) is, would be to use the tool available at

Hope this helps.

Paul Petillo, Managing Editor of

Dr. Mom said...

Thanks! I will check it out. Sometimes it's like trying to learn a foreign language!