Wandering in Mutual Land
For me mutual funds are an uncharted country. I've gradually come to navigate individual stocks in certain sectors with some confidence, but I could use a GPS in exploring mutual funds.
Recently my company informed me that for my retirement fund they were going to switch from actively managed funds to passively managed funds. Supposedly there are fewer internal fees with a passively managed fund which has a goal of matching an index vs. an actively managed fund with a goal of beating the index. Somehow trying not to beat an index sounds counter intuitive to me, but I'm trying to keep an open mind. (Last year the target fund for my retirement age had a 12% loss so I can understand why Milliman might have decided to part ways with Russell--although given the volatile state of the market that level of loss didn't surprise me. Capital preservation does have a place in a retirement plan. We will have to see if Vanguard's strategy works better.)
In looking over the prospectus provided (which unfortunately wasn't as readable as travel guides often are) I noticed that one of these passively managed funds target funds for an earlier retirement date than mine had a 30% portifolio turnover last year. 30% turnover seems a rather hyper rate for a passive fund, but I have no sense of what is normal. Paradoxically the later the retirement date the lower the portifolio turnover. Perhaps if a fund has a higher toleration for volatility with a longer time frame to retirement less balancing is required and saves more in fees?
Also I was surprised that the most conservative fund (a Federated Capital Preservation Fund) which was recommended for those on the brink of retirement had holdings that were not widely spread across industries, but were primarily insurance company bonds. Somehow I wouldn't consider investing in insurers as necessarily the safest thing to do. Also the largest holding was 19% of the fund. What about diversification?
I welcome your thoughts to give a clear picture of what I'm looking at in this brand new kind of topography.