thinking of investing extra money in sector funds

I've just said this in another thread, but I'll say it again: Hardly anybody really needs sector funds in their asset allocation plan. Especially if you're just starting out investing, don't have a whole lot of money to throw around, and don't really know what you're doing, stay away! On top of exposing you to additional risk and the danger of "chasing returns", investing in a lot of sector funds also gives you higher expenses and trading fees, and makes a lot of extra work for you in keeping an eye on all those funds, reading their shareholder reports, etc.

Your target retirement funds are already about as diversified as they can be. You don't really need to invest elsewhere for diversification purposes.

That's called "chasing returns". Repeat after me: past performance is no guarantee of future returns. On top of that, you said above that you "need" to roll the money out of your old 401k. If you don't "need" to do that after all, I'd just leave the money where it is and not reallocate or divert any of it until you educate yourself and come up with an asset allocation plan.

-Sandra the cynic

OTOH, if one has the bulk of one's long-term don't-think-about-it money in a well diversified and managed fund (or funds - ie. the pair of that target-retirement and freedom funds), there's room for one to "play" a little bit at the margin. With a total investable assets base of $37k, if the OP wants to put, say,

Not too messy if it's all in IRA/401ks. No need to track cost basis or report proceeds of individual trades to the IRA (though quicken makes it easy enough) and the difference between managing and tracking 3 funds versus 5 funds isn't too big a deal.

What you do by keeping the bulk of your assets in diversified investments which are invested roughly proportional to market weights (presumably how they are invested via those target retirement funds) and then putting a bit more into one or two sectors (or styles - ie. value) is not adding to diversification so much as "overweighting". If you believe that, say, long-term, healthcare is going to outperform the market as a whole, you probably don't want to go *all* healthcare, but you might want slightly more healthcare exposure than an index would give you. The easy way to do that is to buy an index for the bulk and a sector fund for the overweight. Don't go overboard - never forget what happened to Tech a couple of years ago!

Very true enough. Moreover, the expenses on those MS funds are almost certainly much higher than the expenses on the Vanguard and Fido funds you mention, aside from the questions of whether your 401k admin is dinging you for admin fees, and additionally - do you really want to have to keep dealing with your old employer (or his agent) on a long-term ongoing basis? I'd much rather deal with Fido or Vanguard directly. That alone is a big plus for a rollover.

You probably don't need to roll it out of the old 401k. But you might want to anyway and there's really no downside to moving it into that Vanguard fund you've already got opened as an IRA. In the IRA you can freely reallocate it later without tax consequences, and you will have that much less to have to track or pay attention to, and one less administrator do deal with.

Do you have any other investments outside of this "retirement" holdings ?

You already are into funds that in themselves are diverse.

Here is another way at looking at things... the S&P funds, and how they approach segmenting the S&P into 9 strategic areas of investing - SPDRs.

The concept of the retirement fund investing is like gambling... You can afford the risk early and when you are young, but then as you get older, or are at the table longer, you want to safeguard the nestegg & winnings, so you shift into less-risky areas so as to not loose principle while chasing returns.

The "sectors" will shift from time to time - just like the HUGE run up in tech back in 2000, or the run up in energy last year...

So - as long as you keep putting money into your current holdings, and they already diversify your investments.... you are good to go.

Thanks for the info, everyone. What Bread says is kind of what I thinking, but stated much more clearly. Most of my money's in the two retirement funds, but I have this extra that I'd like to play around with, sort of as a way to learn more about investing, but also to make it all a little more interesting. I was thinking/hoping that doing it within the context of my IRA would eliminate the trading costs.

I'm not sure yet what to do about the old 401k. I neglected to check on what fees they may be charging me, so if those turn out to be high, I'll probably move the funds. Otherwise, I may let it sit while I think some more.