FAQ 3-Fund Compatibility

Mutual Fund Performance, Monitoring, and Miscellaneous Questions

How do I get started on analyzing the mutual funds within a 401k portfolio or retirement plan account?

  1. First determine and record the ticker symbols for every mutual fund available in your 401k or retirement plan. This may require you to review the online prospectus within your 401k provider web site or retirement plan site.
  2. Use the Morningstar.com portfolio tool to enter all of your tickers and compare performance. The Morningstar tool will let you sort mutual funds by performance for 3 months, 1 year, YTD, 5-year, 10-year, etc., to highlight the top performing mutual funds. Select funds that beat the S&P 500 index since the last uptrend or downtrend started to increase your mutual fund returns.
  3. Consider setting the Morningstar.com portfolio tool page as your default internet explorer home page to force you to review your mutual fund performance on a regular basis.

I can’t find the ticker for a mutual fund in my 401k plan or retirement plan?

Some investment options in your 401k provider or retirement plan account may not be a mutual fund at all, and won’t have a ticker to track.  The investment option is likely a private portfolio of investments that resembles an index (S&P 500, EAFE, Total Market, etc.).  The prospectus will likely explain what index it most closely resembles – simply use the ticker for the corresponding index or ETF to track performance of your “private” fund. 

How do I test performance of a mutual fund with the 401k Trend market trend indicators?

If you are proficient with Microsoft Excel:

  1. Download historical price data for your mutual fund at Yahoo Finance to Microsoft Excel (or an alternative to Microsoft Excel).
  2. Use historical market trend indicator change data provided on this site with Microsoft Excel to calculate performance. 

How can I find out what index a mutual fund most closely resembles?

  • Your company 401k site performance/research data or the mutual fund prospectus will typically compare the mutual fund’s performance to the market index that it most closely represents.
  • You can also find the ticker symbol for the mutual fund and use tools such as Yahoo Finance and www.Morningstar.com to identify the corresponding index.
  • For example, mutual fund prospectuses or your 401k plan data will indicate that a mutual fund resembles the S&P 500, Wilshire 5000, MSCI EAFE, Russell 2000, etc.
  • If you can’t find any index in the prospectus or other retirement plan information, try comparing performance data for the investment with the S&P 500.  If the returns for the investment options resemble the S&P 500 index, then use the S&P 500 as the benchmark index.

What mutual funds may be compatible with Indicator #1 & #2, the “Major Market Index Trend Indicators”? Mutual funds that resemble the following indexes may be compatible. The ticker symbols for sample ETFs (Exchange Traded Funds) or associated index funds are provided.

  • S&P 500 Index (SPY or ^SPX or $SPX)
  • Nasdaq 100 Index (QQQQ or ^NDX or $NDX)
  • Dow 30 Industrials Index (DIA or ^INDU)
  • Russell 2000 Index (IWM or ^RUT)
  • Wilshire 5000, Wilshire 4500 Index (^DWC)
  • US total market or extended market funds (VTI or TWM)
  • MSCI EAFE Index (EFA)
  • MSCI US Broad Market Index (VTI)
  • MSCI Australia Index (EWA)
  • Russell 3000 growth Index (Yahoo ^RAG)
  • Russell 3000 value Index (Yahoo ^RAV)
  • Some international mutual funds (EEM).

Which mutual funds are the most compatible with Indicator #1 & #2?

  • The best approach is to use an S&P 500 index fund, an EAFE (International) index fund, a Total Market index fund, or an Extended Market index fund. For more information on index funds please read John Bogle’s “The Little Book of Common Sense Investing”. For a quick read on index funds see http://en.wikipedia.org/wiki/Index_fund.   Or Google search “index funds”.
  • If you must use mutual funds that aren’t passively managed index funds, only use mutual funds that perform better than the compatible index using a “buy and hold” strategy over at least the last 5-years. Never use a fund that performs poorly over the long-term compared to the index it must closely represents.
  • Although these are riskier, mutual funds that rise the most during upturns but also fall substantially during downturns may be compatible (and best suited for “UP” indicators). 
  • The perfect mutual fund will rise more than the S&P 500 during bull markets, and fall less than the S&P 500 during bear markets – unfortunately these are not common in 401k accounts.

What mutual funds are NOT typically compatible with Indicator #1 & #2, the “Major Market Index Trend Indicators”?

  • Commodity ETFs and mutual funds (oil/gas, gold, silver, etc.).
  • Poorly performing mutual funds. Poorly performing mutual funds will often perform poorly with or without market timing. The free Morningstar.com “portfolio” tool will show you how a mutual fund ranks compared to other similar mutual funds. We suggest using the tool to compare and rank all of the mutual funds in your 401k plan or other retirement account on a periodic basis.
  • 100% US govt. bond funds.

Where do I put my money when not in equity mutual funds during “DOWN” indicators?

  • During “DOWN” indicators the publisher uses Bond Index Funds, “Bear Resistant” or “Defensive” stock funds, Money market mutual funds, “Cash” mutual funds, and “principal protected” mutual funds. Some are called “income funds” or “income interest funds”. Please consult with your financial advisor or 401k provider to determine approach. Some commodity and sector funds may also perform well when the stock market is in a downturn or bear market.
  • A low-cost Bond Index Fund or “Bear resistant” (“Defensive”) stock fund will often be the best choice. A low cost bond index fund has low expenses compared to other bond mutual funds, and should have higher long term returns as a result.

What is a “Bear-Resistant” stock fund?

  • A stock fund (equity fund) that is resistant to down-turns and bear markets. In other words, stock funds that fall a smaller amount relative to the S&P 500 index funds during bear markets. Example funds in the publisher’s 401k that have dropped less than the S&P 500 during recent down trends: NBGIX and TRHYX.
  • A high-yield corporate bond fund. Example fund in the publisher’s 401k: TRHYX

Would a lifecycle fund work for a bear resistant fund?

  • Lifecycle funds are intended as simple mutual fund choices based on when you retire. I.e., Fidelity Freedom 2020, Fidelity Freedom 2040, Blackrock Lifepath 2010).
  • Lifecycle funds are suitable as a bear resistant fund – typically 2010, 2015, and 2020 lifecycle funds (beyond 2020 has too much risk for bear markets).
  • The publisher prefers use of a good bear resistant or defensive stock fund along with a lifecycle fund. In a defensive stock fund, almost all of the investments in the fund are stock. But these stock funds are rare – the publisher has one in his 401k (“NBGIX”).
  • A potential method to spot these defensive funds – enter all of your 401k funds into the Morningstar.com portfolio tool: the Morningstar five star funds will typically hold up well in down-turns.
  • A corporate bond fund has worked well for me as a bear resistant fund until it was removed as an option in my 401k.
  • The publisher would also use an equity fund that doesn’t drop as much as other equity funds when the market falls.

Are the indicators compatible with all mutual funds?

  • 401k Trend indicators are designed to represent overall market trends and are NOT suitable for investing in some mutual funds, ETFs, stocks, and other securities. Some mutual funds, ETFs, stocks, and other securities will move in the opposite direction of market trends suggested by 401k Trend, resulting in losses that outweigh gains. It is up to you complete testing and decide whether an investment is appropriate.
  • When in doubt, the publisher’s approach is to use an S&P 500 Index Fund or EAFE Index Fund for “UP” and “HOLD-REDUCE” positions.

Can I trade Exchange Traded Funds (ETFs) with the indicators?

The 401k Trend market timing system is compatible with index ETFs and some sector ETFs.  ETFs are used as examples in the 401ktrend trend historical performance data and sample allocation approaches.  ETFs have higher investing costs than traditional index mutual funds – these costs will decrease your returns over time.

Are indicators #1 & #2, the “Major Market Index Trend Indicators” compatible with international mutual funds?

Yes, most international and emerging markets mutual funds are compatible.

Are indicators #1 & #2, the “Major Market Index Trend Indicators” compatible with bond mutual funds?

No. However, a good approach is to move holdings to bond funds when the indicator moves to “Down”.

Are indicators #1 & #2, the “Major Market Index Trend Indicators” compatible with individual company stocks?

Generally, no. However, a majority of individual stocks do not perform well during overall market down turns (and a majority of stocks perform best when the overall equity market is rising). A potential strategy is to buy individual stocks only at the start of new “Up” trends.