The General Motors 401K review

A lot of people ask me for advice on investing in their 401K. I am not a professional so be advised my opinion is just that some guy’s opinion.

I want to review the funds available in the General Motors 401K plan. With all investing an investor needs to develop an asset allocation and invest accordingly.

The GM 401K is not a bad plan. In general it is a bastion of mediocrity. Few funds are all that great few are really bad funds.

There are two very good funds in this plan. The big problem that I have is they are both small cap mutual funds. Many of the funds in this plan are too large and are bloated.

The first is the PYRAMIS small cap core pool. This fund has done very well and returned 32 percent in 2010. From the company website: “The objective is to seek to provide excess return over the Russell 2000 Index while maintaining similar characteristics and sector weights relative to the benchmark.” The fund has done just that.

The second is the Frontier small cap growth fund. This fund pounded out nearly a 29 percent gain in 2010. This fund seems to be well managed and has beaten the markets over most quarterly periods.

Investors should not have all of their money in small cap stocks. For large cap investing my choice is the low cost index fund.

The SSgA is an index fund which is supposed to mirror the Standard and Poors 500 index. This fund is published to have zero expenses and actually outperforms the index.

The SSgA REIT Fund has a 0.14 expense ratio which is quite low. I cannot recommend putting more than 5 to 7 percent of your money in a specialty fund like this.

As for bond and fixed income funds investors have some pretty fair to good choices here too. The Promark Income Fund which is supposed to mimic a money market fund returned almost 4 percent in 2010. The PIMCO Core Plus Bond Fund – Class II was up just over 12 percent year over year ending September 30 2010.

As far as overseas funds I would be investing in overseas funds outside of this plan. The Fidelity Diversified International Fund is the best of the international funds the plan has to offer. This fund is rated four stars by Morningstar but I feel Morningstar is being generous here. This fund is too large and bloated. This is a fund I would sell if not in a 401K plan.

This plan is administered by Fidelity which is a great firm. As with any 401K I would recommend rolling over to an IRA should you leave the company.

The balance of the plans fund consists of a few average to subpar funds. The target date funds are good but not great. I am never a fan of target date funds but in this plan they would not be an awful choice.

All things equal I would put money into an IRA and invest in the best funds. Once the investor has their asset allocation select the best small cap, best mid cap, global, bond, and even concentrated portfolio funds for your portfolio.