MRLOX / MALOX all retirement in 1 fund - question for passive investor. Need advice.

JonGaltIII

Ok, so I have a close friend and he’s in his 50’s. We were discussing investing in general for the first time today. He doesn’t know much about investing. It turns out his entire 401k or retirement is invested in one fund - MRLOX. He’s not even sure how he ended up in the fund but he’s there.

So I looked it up and researched it a bit out of genuine concern but knowing I will never give advice without also asking him to run it by a fiduciary ... so in my quick analysis it seems like he’s better off in a S&P 500 Index or Total Market Index. It’s not that MRLOX is a terrible fund but it hasn’t beaten the 500 Index consistently. It’s been fine recently.

What would you recommend? A 500 Index or total market index, a target fund (uggh), stay with MRLOX or pay a brokerage a 1% fee to invest for him (not that he would go for that)... Again, any recommendation will be followed with -run it by an investing professional or fiduciary. Just wanted the community’s opinion. Is there a better option for him? Oh and he’s asking for my advice. It’s not unsolicited.

msf

MALOX is a solid world allocation fund. For over two decades (until about a decade ago), it paced PRWCX (a domestic allocation fund) nicely. It returned less over the past decade, likely because international investments generally returned less. For example, VGTSX returned 5.10% over the past decade (ending Feb 3) vs. VTSMX's 13.55%.

Depending on how long he intends to continue working, its roughly 65/35 allocation could be quite reasonable. So a first question is why consider a 100/0 allocation going forward as he edges toward retirement? (Your aversion to target date funds reinforces the impression that you prefer equity funds.) After that one could get into global vs. domestic.

There's also a question of mechanics. Generally in-service withdrawals of 401(k)s are not allowed until one is 59½; even then only if the plan allows it. So that part of his retirement assets would seem to have limited options until he's nearly 60. It likely could not be turned over to a brokerage to manage. This also means that we can only talk in generalities (types of funds).

I also notice that he's invested in a a fund with a 0.50% 12b-1 fee. That is considered a load and adds up to way more than 5% or so that one might have paid instead with a front end load. (It charges 0.34%/year more than the A shares that are generally available NTF.) This suggests that most or all of his 401(k) investment options come with high fees. Outside of suggesting doing a rollover into cheaper funds as soon as he is able, I don't know what else could be done about this.

Mark

A couple of thoughts.

1) Since you stated that his investment is held within a 401K what other funds are available to him or is he looking to move out of the 401K?

2) Warren Buffett is on record recommending a S&P 500 index fund for most people and there certainly are a number of options with far less than a 1.4% ER. I'd start there.

catch22

I agree with msf. MALOX has a longer decent past performance but started to fall apart beginning in 2014, vs the SP500. I don't know, but have to suspect more faith was placed into or kept in place outside of the U.S. This has not worked so well during the time frame.

Are you able to provide all of the 401k choices available to him and place the tickers here, AND what organization (Fidelity, etc.) is the vendor for the 401k?
Not much can be offered for comment without knowing other choices.

JonGaltIII

@msf @mark @catch22 - you’ve already helped by your responses. Thank you! I believe he has it in a 401 vs ira and you’re right... if so ... its limited choices on mechanics etc. The info on MRLOX is appreciated as I am unfamiliar with that fund. Really helpful and thanks msf for including the extra considerations.

MikeM2

Jon, MRLOX compares decently with the Vanguard Balanced Index on several risk and performance measures. It is not a pure equity fund so comparing it to the SP500 performance will lag due the bonds AND the foreign sleeve. The MFO Premium site's quick search shows details some of which you have likely seen. It's free for individual funds in the QuickSearch Function at the top. One thing I though of ....my wife's 403b(teacher) started out in a higher share category and then over time converted to the A shares with the lowest annual expense ratio. Your friend's shares are in a R-retirement share so I don't know if that is fixed for life or decreases over time to become A shares(over 5-7yrs this what happened to the B shares she had). HR folk have no idea about many of the expenses etc and with a little pushing folks have gotten better deals from 401k/403b plans. I wasn't able to screen shot a little data but give it try.

MikeM2

Let's see if this works. This is QuickSearch Data.

file:///home/chronos/u-dc215f778f4a60cae7414063930d1217c0a14070/MyFiles/Downloads/RiskProfile%20%E2%80%93%20MFO%20Premium.mhtml

MikeM2

Yep, it worked. Cut and paste the whole line from file to mhtml

msf

R shares are closer to C shares (level load, never converting) than to B shares (back end declining load, converting).

Here's what the prospectus for MRLOX says about C and R shares:

If you select Investor C or Class R Shares, you will invest the full amount of your purchase price, but you will be subject to a distribution fee of 0.75% per year for Investor C Shares and 0.25% per year for Class R Shares and a service fee of 0.25% per year for both classes of shares under plans adopted pursuant to Rule 12b-1 under the Investment Company Act. Because these fees are paid out of the Fund’s assets on an ongoing basis, over time these fees increase the cost of your investment and may cost you more than paying other types of sales charges. In addition, you may be subject to a deferred sales charge when you sell Investor C Shares within one year.

B shares got a bad rap, only partly deserved. The extra 0.75%/year in fees before converting had a net effect roughly the same as paying 5.25% up front (A shares). So they didn't hurt investors much more (or less) than "normal" loaded funds. But because they were sold as "putting 100% of your money to work", the pitch was deceptive.

Similarly, C shares let people think they weren't paying loads. A difference is that unlike B shares, these shares (until some fund families recently relented) never converted.

MikeM2

B shares converting to A shares was my wife's experience. Her Capital Group R shares have a low expense ration but I am not surprised that in some cases C shares and R shares are egregiously high. Further load-waived is common now.

Baseball_Fan

JG,

interesting situ your friend has... making me think

I read an article maybe 20 years ago, seems like yesterday... In investors business daily...said all you need is one growth fund and a money market, checking account

Stated you keep adding to it and then when you get fed up with the daily grind you take monthly withdrawals. No reason to over complicate it

Malox seems reasonable diversified

I think if you did that with vwelx Wellington vanguard over the past 30 years you would have done decent

Sometimes I believe we all tinker to much. I had a Harley Sportster back in the early 80's. The saying was, does it run good? Yes, then don't freak with it, just keep riding


Good luck to you and your friend

Baseball fan

JonGaltIII

Really interesting feedback above. @Baseball_fan I can be guilty of tinkering too much in pursuit of perfection that doesn’t exist in this game... which is why I had to post to the board... I was hoping I might learn something new. (I have). It was just so shocking to me that my pal was using 1 fund and didn’t know why. But it hasn’t been awful for him. So I knew this board would be able to offer different perspectives, questions and considerations that I couldn’t come up with. And you all have. Thanks for the comments!