Help choosing funds for employer matched 401k plan?

By kevinoman0221 on Sun, Sep 15, 2013 - 11:33pm

Summary (Tl;dr): I'd like your thoughts on whether Vanguard's "Interest Income Fund" is a good option for my company-matched 401k plan, seeing as I am expecting a stock-market crash and am leery of (and confused by) the bond funds.

Details: My wife and I are setting up the allocation of funds into her employer sponsored 401k plan. We are only contributing up to the amount necessary to get the maximum company match.

The investment options are limited. There are bond funds, stock funds, and mixed funds with various ratios of stocks and bonds. There are no sector-specific funds, like precious metals miners or energy companies, sadly. And no cash option. Given this, I am not even trying for a return on investment, but simply want the best odds of a return of investment (and the employer match).

I am currently operating under the assumption that Chris' prediction about a large stock market correction happening soon is correct, so I do not want to be in any of the stock-heavy funds. However, looking at some of the bond funds, I see they have negative returns for the past year (I am new to this and, perhaps naively, thought US bond funds could never have significantly negative returns). These are all Vanguard funds, and, for example, the "Inflation-Protected Securities" fund, which is entirely US Gov backed securities, shows a -7.25% 1-year return.

This brings to mind something Chris has mentioned a few times before - that he expects the first signs of an economic collapse to appear in the bond markets. I don't understand exactly what this means, but I'm wondering if it is related to the -7.25% 1-year return mentioned above? Does it mean that bonds, of any kind, are not a viable way to ensure return of investment if things go south?

The "Vanguard Total Bond Market Index Fund" also shows a negative (-2.63%) 1-year return.

All the stock-heavy options show a 50% (give or take) drop during the 2008 crash, so I don't expect they will fare well during the crash Chris is predicting.

There is one option that may work well - their "Interest Income Fund" - but I can't seem to find info on what the fund holds. It's returns did not seem to be impacted by the 2008 crash, though, and it's 1-year return is positive 2.08%. So it seems to stand out from the other funds as an option that might protect our savings from a large stock market crash as well as issues in the bond markets. I'm hoping to get the feedback of this community on that conclusion.

Thank you!


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