Good advice: Once you have the funds built up and the time to research (and it DOES pay to research funds).
Index funds are dandy for when you don't time to research. Make the time later. True, the vast majority of funds don't outperform the market index, but some do. It's worth the effort.
Personally (and I'm not an expert by any means) I have these in my limited choice employer provided 401k. I've been in the fund 5 years so far.
So compare the S&P 500 index to the returns on each of my funds.
Fund, Name, Avg Annual Total Returns for 1,3,5 and 10 years
S&P500 Index: 11.83%, 10.06%, 6.27%, 8.2%
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DODGX: 14.51%, 14.40%, 12.15%, and 14.15%
Dodge & Cox Stock
FDGRX: 2.25%, 10.50%, 7.01%, and 9.83%
Fidelity Growth
CRMMX: 14.28%, 15.82%, 13.01%, N/a
CRM Mid Cap Fund
AUSAX: 4.84%, 13.32%, 11.53%, 13.25%
Columbia Acorn
FDIVX: 15.18%, 18.41%, 17.41% 13.22%
Fidelity Divs. International
Roughly %20 in each fund.
Yup. a couple lagged this year, but you don't get a winner each year for each fund. All in all, I'm pleased with the allocation. Remember, I don't have much choice.. 3-4 other funds that really performed poorly are my only alternatives. I've gotten better than the S&P overall for the 5 years I've been in this 401k.
Now I just started an Traditional IRA of my own this year and maxed out my $4000 contribution for the 2006 year. I'm also maxing out my 401k contribution to my employers maximum matching contribution (free money!!)
My Schwab IRA as these funds:
S&P500 Index: 11.83%, 10.06%, 6.27%, 8.2%
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UMBIX: 11.14%, 14.17%, 11.66%,14.14%
(Excelsior Value and Restructuring)
SSAIX: 22.65%, 22.31%, 18.29%, 8.03%
(SSgA International Stock Selection)
MXXIX: 7.82%, 14.84%, 15.62%, N/a
Marsico 21st Century
FBRVX: 12.90%, 17.36%, 19.61%, 18.20%
FBR Small Cap
CAMOX: 9.06%, 11.20%, 9.57%, 12.25%
Cambiar Opportunity Fund
Again... roughly %20 in each fund.
the numbers above look promising compared to the S&P, but "Past performance isn't indicative of future returns".. but the chances are good, based on my research.
(also... the S&P isn't the proper yardstick for every comparison. There are valuable indexes for most categories of fund investment.
The midcap funds are compared with the Russell Midcap Index
The FDIVX and the SSAIX (international funds) are compared to an index like the MSCI EAFE Index "The EAFE Index (Morgan Stanley Capital International Europe, Australasia, Far East Index) is an unmanaged index and includes the reinvestment of dividends. It is designed to represent the performance of developed stock markets outside the United States and Canada"