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Microsoft Introduces Lifecycle Funds to 401(k)

Contributed by mm | August 4, 2005 12:28 PM PST

To give credit where credit is due, Microsoft's benefits department is very vigilant in its handling of the 401(k) program. Earlier this year, the poor performing Fidelity Magellan (FMAGX) was dropped from the investment options. It is not an easy move considering Fidelity is the trustee of Microsoft's 401(k) plan.

Now here comes another improvement of the plan: as of August 1, Microsoft is introducing five lifecycle funds from Barclays Global Investors LifePath Portfolios to the 401(k) plan: LifePath Retirement is designed for people who is current withdrawing the money, while LifePath 2010, LifePath 2020, LifePath 2030 and LifePath 2040 are geared toward people with different investment horizon in mind.

Each of these five funds are built upon five index funds, targetting US bonds, US large-cap equities, US small/mid-cap equities, international equities and money market respectively. For example, the LifePath 2030 Fund currently includes: 21.99% in domestic bonds, 19.40% in international stocks, 49.85% in large caps and 8.76% in small and mid-caps. As like other lifecycle funds, the % will gradually change over time toward a very conservative mix.

I always appreciate extra choice -- additional choices never hurt as long as you have the choice not to invest in the new funds, so I will probably try out these lifecycle funds in a small scale some time. One more small issue: the M-series of funds used in Microsoft's 401(k) plan did not exist before August, and I cannot find the symbols for these funds. Without symbols, it will be very hard for me to track my 401(k) portfolio in Microsoft Money.

(I am currently seeking clarification from our benefits department on the management fees these funds are subject to. The communication mentioned Barclays will charge 20 basis points as management fee. It is fair only if it is not in addition to the fees from underlying funds though.)

This Post Has Received 3 Comments. Share Your Opinions Too.


taupecat Commented on August 5, 2005

Lifestyle funds are designed to do the diversification for you. They are intended as a completely hands-off investment option for people who have neither the knowledge nor desire to direct their own portfolios. Investing only a small portion of you contributions in one defeats their purpose, and generally will not gain you anything.

Since you are obviously quite active in managing your fund choices already, I would not recommend that you invest anything into them yourself.


mm Commented on August 6, 2005

Make sense. Thank you Taupecat. I will just test the water using a few hundred bucks so I can probably post some observations at PFBlog and/or choose to devote my entire portfolio. I'm quite sure I have more risk tolerance than even the 2040 fund, so a scenario can be I use the 2040 fund to cover my base, while playing with individual (and risker) issues using the rest of my money.


reader Commented on August 7, 2005

These lifestyle funds are great for hands-off investors, but not necessarily bad for people like you. The main downside to investing only a portion of your money here(other than the potentially higher management fee) is that you will probably have overlapping investments and thus will not be as diversified as you should be.


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