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I'm helping a friend roll over his 401K into an IRA. How can I advise him as he selects what to invest his money in? Factors I know to consider:

  • Rate of return over 1, 3, 5, and 10 years (and Morningstar rating, yes or no?)
  • Expense ratio
  • Risk factors such as R squared

I realize there are appropriate asset allocations for each stage between bonds and stocks, etc. What else should my friend consider?

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    Morningstar Ratings might not be all their are cracked up to be (clarkhoward.com/liveweb/shownotes/2010/08/19/19103) – JohnFx Sep 14 '10 at 14:58
  • @JohnFX - thanks. By lowest cost do they mean lowest expense ratio? – justkt Sep 14 '10 at 15:46
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    In addition to the expense ratio, also consider the expense ratio, the expense ratio, and the expense ratio. Seriously. A difference of .5% means ~20% of your retirement fund after 40 years. – user296 Sep 14 '10 at 18:28
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Another aspect to consider is the proper asset allocation for his risk level. You shouldn't recommend your friend to be 100% in developing foriegn markets unless they're really risk tolerant (and even then, its probably not the best way to get good returns).

There are numerous other posts about asset allocation as linked here.

  • doh! Didn't know to look under that tag. A mod can close this question as a duplicate if there's another question that covers my concerns. I do know allocation is important - Fidelity has all sorts of graphs they tout about it. – justkt Sep 14 '10 at 17:45

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