Investment Strategies in Morningstar’s 401(k) Plan
With over 25 years of experience on Morningstar’s 401(k) committee, I collaborate closely with colleagues to choose and monitor a diverse array of funds available to employees. Despite the increasing options in the 401(k) landscape, our guiding philosophy remains to select highly rated, low-cost funds designed for long-term employee benefits.
Core Philosophy of Fund Selection
As Morningstar’s plan has expanded in size, we’ve transitioned to more cost-effective share classes, resulting in a broader selection of funds than when I first joined. We strive to cover vital areas necessary for a well-rounded portfolio while ensuring a variety of options for different investor types, recognizing that not all employees will own every available fund.
Reliability in Fund Choices
Altering the lineup of 401(k) options requires careful consideration and time. Therefore, we prioritize reliable funds backed by robust management teams that are likely to sustain their performance over the long term. This commitment helps safeguard employees’ investment futures.
Accessible Investment Options
Realizing that some employees may need assistance with portfolio construction, we offer two straightforward options: Vanguard target-date funds and a Morningstar-managed portfolio. These options are structured to cater to those without the time or expertise to manage their investments effectively.
Fund Lineup Overview
Let’s explore the funds currently available in our lineup. While I’ll highlight the fund tickers present in the Morningstar 500, please note that we often include institutional share classes for better cost efficiency. (Transparency note: I personally invest in several of these funds.)
Target-Date and Large-Cap Funds
A standout option for our 401(k) is the Vanguard Target Retirement funds, known for their affordability and ease of management. For instance, the Vanguard Target Retirement 2030 fund (VTHRX) costs just 0.08% and boasts a 10-year annualized return of 7.7%.
Diverse Investment Categories
We also feature various large-cap options such as Dodge & Cox International Stock (DOFX), known for its classic value approach, and Harbor Capital Appreciation (HACAX), aimed at growth through innovative companies. These funds not only enhance our offerings but also cater to distinct investor preferences.
Expanding Small- and Mid-Cap Coverage
In addition to large-cap funds, we have strong small- and mid-cap options including the DFA International Small Company Fund (DFISX) and Primecap Odyssey Aggressive Growth Fund (POAGX), both of which leverage deep market research to identify promising investment opportunities.
Hedging Against Inflation
To protect against inflation, we incorporate various inflation hedges, including the Vanguard Short-Term Inflation-Protected Securities Index (VTAPX) and Pimco Commodity Real Return Strategy (PCRAX). Each of these funds provides unique advantages to help mitigate inflation risk.
Fixed-Income Options
Our bond offerings, such as Dodge & Cox Global Bond (DODLX) and Vanguard Total Bond Market Index (VBTLX), provide a solid foundation for diversifying fixed-income portfolios. These funds are designed to suit varying risk appetites, ensuring our employees have appropriate tools for financial stability.
In summary, Morningstar’s 401(k) plan is built on a commitment to high-quality, low-cost investment options across various asset classes. By offering diverse strategies, our employees are better positioned to achieve their long-term financial goals.
