I am trying to reallocate my 403b TIAA CREF funds according to what Dave Ramsey recommends. I am having trouble figuring out what funds fall under his 4 categories; growth, growth and income, international, and aggressive growth. There is one fund called growth and income, and one international, so that is easy. However I am stumped on figuring out which are growth and which are aggressive growth. I probably would prefer to avoid the aggressive growth and go with a balanced but that is also hard to discern. They are called things like small cap, mid cap, large cap etc. Some are value funds and some are equity? I get that equity is stock but what is value? I get what index is. I have been averaging a poor rate of return and have decided to manage it myself rather than the manager employed by TIAA CREF for my institution. Thank you for advice
Comments
If you are boxed in by only TIAA CREF choices try to identify the very best. Choosing TIAA CREF funds is notoriously confusing. Your plan sponsor may have simplified this to the point of excluding good choices.
What are your choices?
Also, a great place to ask basic investing questions and gather basic knowledge is Investopedia.
I entered the question:
What's value investing?
investopedia.com/terms/v/valueinvesting.asp
Which of the funds are you considering in the below linked list?
Your having access to your 403b web site should allow you to determine from that list what the fund types consist. An example: aggressive growth should be noted in the prospectus or listing of particular funds. Growth and income can be considered a type of "balanced" fund; but there are many flavors of "balanced" funds; some being more aggressive than another.
TIAA CREF funds list
While I'm not familiar with Dave Ramsey, three things immediately stood out for me when I looked up his advice:
- His use of growth, aggressive growth, etc. (your question) is at best quaint. Morningstar abandoned these categories decades ago, because it found that what a fund says it is doing (its objective) wasn't reliable; what is more reliable is how the fund is actually investing. So you can't necessarily go by the name or objective of the fund. See, e.g. http://mutualfunds.about.com/od/typesoffunds/a/What-Is-Aggressive-Growth.htm
- He is advocating a pure equity portfolio for retirement plans (no bonds, real estate, etc.). That might be okay for a 25 year old, or for someone with a high risk tolerance, but is generally not considered good advice. You are implying this also in asking about balanced funds; the page I linked to above makes the same point.
- He recommends front end load funds. If you are managing your own portfolio, there is (almost) never a reason to pay a load. That goes into the pocket of your adviser. If you're getting advice for that money, it may be okay, but if you're managing your own investments as you want to do, it makes no sense (or cents).
All that said, here's my suggested mapping from CREF funds to Ramsey's four categories. This is quick and dirty, I suggest you learn more about the funds instead of relying upon a list like this; also, because I'm not researching now, don't count on my accuracy:
CREF Equity Index - Growth and Income (traditionally, equity index funds are considered G&I)
CREF Global - not quite international, because it includes US as well
CREF Growth - growth (not aggressive; CREF is a conservative manager; also this invests "primarily in large, well-known, established companies"; it might be consider G&I, as part of its portfolio is invested in an index)
CREF Social Choice - none (it is basically an allocation fund - a mix of US (and a few foreign) stocks, and bonds)
CREF Stock - growth (it has a lot of foreign, somewhat like FLPSX)
Regarding the TIAA-CREF funds:
Emerging Markets Equity - international
Emerging Markets Equity Index - international
Enhanced International Equity Index - international
Enhanced Large Cap Growth Index - growth
Enhanced Large Cap Value Index - growth
Equity Index - growth and income
Growth & Income - growth and income
International Equity - international
International equity Index - international
International Opportunities - international
Large-Cap Growth - growth
Large Cap Growth Index - growth
Large-Cap Value - growth and income (close call; typically large cap value stocks pay more in dividends, so this inherently focuses on some income as opposed to pure growth)
Large-Cap Value Index - growth and income (as above)
Mid-Cap Growth Fund - growth (TIAA-CREF is not an aggressive fund manager)
Mid-Cap Value Fund - growth (could be growth and income but smaller caps tend to not be considered income-oriented investments)
S&P 500 Index - growth and income
Small Cap Equity - growth (not aggressive - focused on long term growth, managing risk)
Small Cap Blend Equity Index - growth
Anything else is a hybrid, bond, or sector fund.
Per your question: The recommended portfolio, if I understand it correctly, is a very aggressive one, nearly 100% equity weighted (A "value" fund is generally another variety of equity fund. The G&I fund would probably hold some fixed income investments).
The four categories of equity funds you list comprise a great long-term plan to dollar cost average into over decades through systematic workplace contributions. However, it's not something I'd suggest jumping into all at once, unless you are already similarity invested.
Lots of very wise advice from msf and the others above.
The only nit I have to pick with it is that I've seen a distinction drawn between "growth and income" funds and "equity income" funds. G&I funds are often defined as equity funds that invest for growth (i.e. that the stocks will rise in price), but are also interested in dividends as a bonus (a "secondary objective").
In contrast, traditional equity income funds buy stocks primarily for their dividends. Any growth (increase in stock price) is just a pleasant extra. Historically, these invested in heavily regulated industries (back when there were heavily regulated industries), such as utilities. The government more or less guaranteed a given profit to utilities in exchange for their serving the public good (under regulation). So almost all the value was in the "guaranteed" dividends. The securities bought by these funds were stocks, but behaved more like bonds.
When I first started investing, I read all these words, and they made sense, but it took a long time for them to sink in to the point that I really appreciated the distinctions. So get what you can out of it (and anything else you read) - after some time it will get clearer.