TIME Travel

Why La Quinta Is Not Just Another Cheap Motel Brand

La Quinta, the hotel company undergoing an IPO of its stock this week, is a limited-service brand favored by travelers on tight budgets. At some properties, rooms start under $50 a night. But La Quinta is not just a run-of-the-mill cheap place to stay.

The IPO of La Quinta Holdings, backed by the Blackstone Group, didn’t get off to a particularly good start. On Wednesday, the IPO price was set at $17 per share, down from the original projected price range of $18 to $21. Despite the lower price, at least initially La Quinta shares barely moved, hovering around the $17 mark through midday Wednesday.

While investors seem uncertain about La Quinta, in many ways middle-income, price-conscious travelers—who truly represent the vast majority of travelers—have already offered their verdict about the brand: They’re fans. Here are a few of the reasons that La Quinta stands out in a good way in the crowded mid-scale lodging category.

Low room rates. It’s rare for a La Quinta Inns & Suites to run over $100 a night. La Quinta is usually lumped into the mid-tier limited-service (no restaurant) hotel category with brands such as Hilton’s Hampton Inn, Holiday Inn Express, and Marriott’s Fairfield Inn, and LQ rates generally match or undercut the competition. Because all of these brands tend to fill up with business travelers Monday-Friday, weekends are slow periods, and La Quinta entices last-minute bookings with weekend deals from $49 per night.

(MORE: Airline Travelers, Your Future Will Look a Lot Like … Cleveland)

Travelers tend to think of La Quinta first and foremost as a good value, and that’s reflected in survey ratings: A few years back, the brand was named the second-best midprice hotel (after Hampton Inn) by Business Travel News, and in a more recent traveler survey, conducted by Temkin Group, La Quinta and Best Western received the highest scores of all the industry for best customer experience.

No-hassle reservations. To reserve a room, you must give a credit card number, right? Not at La Quinta. Starting in 2012, the company began offering an Instant Hold option, allowing one-the-go users to reserve a room via a mobile phone with just a phone number. The idea came about because somebody realized that travelers liked to look up hotels and last-minute available with their phones, but it was a pain to enter a credit card number on the device. So La Quinta now lets guests place instant holds on a phone for up to four hours (you’re expected to show up in person by then), and also allows you to browse TripAdvisor reviews of the property and see Yelp ratings of restaurants in the area without having to hop over to another app.

Another unique reservation policy from La Quinta involves advanced bookings. The majority of hotel brands give discounts for reserving two or more weeks ahead of arrival, but there’s usually a big caveat: At Hampton Inn, for example, the tradeoff to a 15% room rate discount for an advanced booking is that payment must be made in full when making the reservation, and no changes or cancellations are allowed. La Quinta offers discounts of 10% to 20% for rooms reserved at least 14 days in advance, but there’s no prepayment required, and cancellations can be made with no penalty up to 24 hours before expected arrival.

Good amenities, minimal nickel and diming. Free Wi-Fi is standard, and rooms are outfitted with flat-screen HDTVs. Several years ago, the company implicitly acknowledged that guests would want to enjoy their own entertainment via laptops and other devices, so it basically gave up on upselling them with pay-per view TV movies and shows. “We have retired that model and replaced it with a solution that instead of preventing guests from plugging their own devices to the TVs in hotels encourages them to do so,” a La Quinta executive explained in 2011.

(MORE: Southwest Airlines: We’re Not Really About Cheap Flights Anymore)

Also, breakfast is always free for guests, and almost all properties allow pets to stay at no additional charge. Most properties have pools too.

More and more locations. The overall mid-tier hotel category has pretty obvious mainstream appeal for travelers. “Limited-scale, mid-price properties are probably in the sweet spot in attracting middle-income America from the leisure standpoint” and business travel, Jan Freitag, senior vice president at the lodging research firm STR Inc., told Bloomberg News in a story about the company’s IPO.

Even in a category that’s been marked by robust growth over the last decade or so, La Quinta’s expansion has been especially impressive. The company now boasts more than 800 locations in the U.S., Canada, and Mexico, up from around 500 in the mid-’00s. Last spring, after a particularly big quarter for new openings, a company press release cited data from Smith Travel Research, which showed “La Quinta grew faster than any other select service lodging brand in its main competitive set in the years 2002-2012, growing by more than 141% in that period.”

A report by Skift on the IPO notes that La Quinta currently has 187 new properties in the pipeline. That includes 17 new locations in Mexico, a market that much of the hotel industry has overlooked in recent years, and where, despite the company’s Latino name, there are only five operational La Quintas right now.

MONEY Investing

When Wall Street Becomes a Landlord

First the pros snap up cheap houses. Then come new ways for you to invest in them. Be careful.

The stronger-than-expected housing recovery — a 20% rebound since 2010 — owes a lot to the investors who swept into recession-ravaged cities and scooped up distressed homes.

Nowhere has that been truer than in the suburbs ringing Atlanta, where rampant overbuilding and economic woes produced a flood of foreclosures.

At the same time, the local rental market couldn’t absorb all the displaced owners. That combination proved irresistible to mom-and-pop investors, whose all-cash purchases stabilized the market: Atlanta home prices rebounded from a 12.7% decline in 2009 to flat in 2010.

Related: Cities where the real estate deals are

Then Wall Street came to town. This second wave of housing investors is spending billions to flip foreclosures into single-family rentals. In January one in every four homes sold in Atlanta went to a large investor, four times the national average, says RealtyTrac.

“They’re coming from all over, even out of the country,” says Atlanta agent and property manager Scott Goeber.

In June 2012 the Atlanta office of real estate manager Waypoint Homes was “me and my cellphone,” says regional director David Zanaty. By last fall he had hired 50 people and bought 600 homes, and hoped to own 1,500 by March.

Large investors are swarming local markets. Real estate powerhouse Blackstone has spent $8 billion to buy 43,000 homes nationwide. American Homes 4 Rent has spent $3.5 billion on 21,700 homes.

Now these buying sprees are being converted to investments.

Since December 2012, four single-family home real estate investment trusts, similar to REITs that own apartment buildings or shopping centers, have opened up to individual investors. American Homes 4 Rent’s AMERICAN HOMES 4 R COM USD0.01 'A' AMH -0.8182% is the largest; most recently Waypoint merged with the home-rental division of Starwood Property to form Starwood Waypoint Residential Trust STARWOOD WAYPOINT COM USD0.01 SWAY -0.3095% , a REIT that owns close to 5,800 homes.

Plus, a new breed of bonds, which bundle rents from single-family homes, is being peddled to institutional investors, such as pension managers or mutual funds. Last October, Blackstone rolled out a $479 million bond backed by 3,207 homes in five states. Deutsche Bank estimates that another $5 billion in home rental bonds will hit the market this year.

So far investors have not been enthusiastic. Some of Blackstone’s bonds are selling below the offer price, and most of the REITs have underperformed their index. The business model is too new, says Brad Thomas, editor of iREIT Investor.

The biggest firms expect to generate 5% to 7% a year in return from rents, according to a Bank of America report. But that hinges on keeping down the cost of maintaining far-flung homes.

“If a toilet breaks, you’ve got to send someone to fix it,” Thomas says. “It’s difficult to do that efficiently. In an apartment complex, a property manager can walk the building.”

Related: Dreary outlook for formerly hot housing markets

And REIT investors shouldn’t count on big price gains. “It’s unproven how their asset value will grow in a more normal market,” says Forward Real Estate Long/Short manager Ian Goltra.

Plus, the REITs have been plowing capital into buying homes, not paying big dividends. And yield is a big reason to own REITs, notes Goltra. Top apartment REITs currently pay more than 4%. The highest available yield in a single-family rental REIT is 1.2%.

“It’s early days,” says Goltra. “For now, they’re too risky.”

MONEY

Dreary Outlook for Formerly Hot Housing Markets

To sort out what you can expect in real estate this year, MONEY zeroed in on four markets: upscale neighborhoods, new investor favorites, booming growth cities, and once-busy areas that have quieted down. Whether your local real estate market is heating up or cooling off, here’s what you need to know about buying, selling or renovating your home.

ONCE-HOT HOUSING MARKETS, NOW NOT

During the past couple of years investors swooped in to snatch up deals in cities clobbered by the crash, driving up prices. But with that low-hanging fruit gone, these markets are now cooling off. In 2014 they should see less impressive price hikes and far more homes for sale. And if rates rise, these areas could get even flabbier, since last year’s price jumps put many homes out of reach for locals.

Related: 10 Fastest Growing Cities

How you’ll know: Your first clue is the amount that area home values increased in 2013. Look at Realtor.com’s Trends page: Anything over 15% is in the pocket. A big jump in the number of homes for sale is another giveaway. (Think Sacramento, which saw December available listings spike 58% from a year earlier.) Check the page’s Total Listings column to see whether your area has had a similar increase.

BUYERS

Take your time. While most of these areas aren’t quite a buyer’s market, you’ll have more choices and power than last year, so don’t rush into a place you don’t love.

Ask for extras. You may want to build in a clause that says your offer is contingent on your ability to get financing or to sell your current home.

Bid low. When markets start to slow down, sellers get nervous — and pliable, says Los Angeles agent Connor Maclvor. Ask your realtor to send you listings where the price has been cut. Those sellers are the most eager, says Maclvor; set your bid at 8% to 10% under asking.

SELLERS

Court bargain hunters. A year ago Phoenix sellers could price above similar listings and still get 10 bids in the first week, says agent Greg Markov: “Not anymore.” Now you want your house to look like a deal, he says.

Check current asking prices for comparable homes, then price your house near the bottom of the range. Two weeks and still no offer? Cut it by 5%.

Max out your listing. Choose an agent that offers pro photos. Homes that have them sell faster and for up to 3% more, according to Redfin. Go beyond Realtor.com, Trulia, and Zillow by posting your house on Craigslist. Make sure that your agent is promoting it on Facebook, Twitter, and Pinterest.

Creating a video for your listing (or to post on YouTube) is another option; 12% of sellers tried it last year, says NAR. If you go that route, walk the camera through the home, since buyers want to see the layout, says Princeton, N.J., broker Henderson.

First impressions count. With more competition for buyers, the focus on curb appeal and staging is back. Be sure your front yard looks neat, pressure-clean the roof, and repaint your front door. Inside, eliminate all clutter. A professional stager can suggest paint colors and lighting and furniture arrangements that will help your place look its best; a two-hour consultation typically costs $150 to $400, according to contractor referral site Fixr.com.

OWNERS

Don’t panic. This isn’t another bust: Your home will still appreciate. In fact, CoreLogic predicts that prices in last year’s hottest 20 markets will rise at an average annual rate of 3.7% through 2018, vs. 3.1% nationwide. Keep those numbers in mind if you’re thinking about remodeling. Smaller projects that bring your home in line with your neighbors’ will pay off, but you’re unlikely to see big enough gains to justify a massive renovation.

MONEY stocks

McDonald’s Seeks To Supersize Its Growth

McDonald's stock has moved little over the past year as the mature company struggles to find its next big thing. But if it wants to show investors growth again, it's all about the menu.

The Golden Arches haven’t shone for investors lately.

Over the past 12 months, McDonald’s MCDONALD'S CORP. MCD 0.7141% stock has returned less than 3%. That compares with an average 21% return for restaurant stocks. Part of the problem is that growth is always harder for a big, mature business — and with a market value of $93 billion, McDonald’s is larger than its two biggest rivals — Starbucks STARBUCKS CORP. SBUX 1.2961% and Yum Brands YUM BRANDS YUM 0.9097% — combined.

But the company has found ways to boost sales before. Job No. 1: Freshen up the menu.

Want wings with that?

McDonald’s has had trouble finding new menu items that diners want.

McDonald’s is no longer the basic burger, fries, and soda joint you remember from your childhood. Facing new upscale competitors, it responded by adding salads, wraps, and specialty coffees to the menu. This worked for a while: U.S. same-store sales climbed an annual average of 5% from 2003 to 2011, according to the brokerage Raymond James.

But lately the Oak Brook, Ill., company has struggled to find “the next big thing,” says Edward Jones analyst Jack Russo. Recent new items like chicken wings haven’t been a hit. (And until McDonald’s settles on the right mix, the added complexity in the kitchen from new items “slows down the drive-thru,” says Russo.)

U.S. same-store sales, though high at an average $2.5 million, have plateaued.

A partial bet on China

The country is important to the chain but still not the main event.

The U.S. market is well saturated, leaving McDonald’s stuck fighting for share with both fancier brands like Chipotle and low-cost Taco Bell fare. So an obvious avenue for future growth is the vast new Chinese market. Last year, 20% of the chain’s store openings were in China.

But China remains a “smaller piece of a much bigger business,” says Morgan Stanley analyst John Glass. He estimates the country represents up to 4% of profits.

Competitor Yum Brands, which owns Taco Bell, KFC, and Pizza Hut, gets a third of its earnings from China. That makes McDonald’s a less risky play — Yum saw a 4% drop in revenues last year in part because of a bird flu outbreak, for example — but also means there’s less potential for fast profit gains.

No shortage of cash

A steady flow helps the company pay back its investors.

Since 1976, McDonald’s has consistently delivered cash back to shareholders in the form of dividends or share repurchases. Today the stock offers an attractive dividend yield of 3.4%. And there’s every reason to think that the business will keep delivering a strong income.

McDonald’s is built to generate consistent cash. When a franchisee launches a new store, the company often purchases the land and collects rent on top of franchise fees. So even in tough times, the “downside is relatively limited,” says Westwood Holdings portfolio manager Matthew Lockridge.

If management can find that elusive new hit product and deliver improved growth, that plus a reliable payout may satisfy value-minded investors.

TIME

Tech Looks Like It’s Entering Another Period of Insanity

Fackbook Acquires WhatsApp For $16 Billion
Justin Sullivan—Getty Images

But are some sky0high prices defensible?

Is the world of tech investing losing its head again? Or are some tech investments worthwhile even at jaw-dropping prices because of the potential for future growth? Such questions crop up now and then, but in the past few weeks they’ve come up with an alarming frequency.

Last month, after Facebook said it would buy WhatsApp for $19 billion, a furious debate broke out over whether the price was insane or defensible. Since then, similar debates have emerged in different areas: most recently, the wildly successful IPO of digital-healthcare startup Castlight; and Intercept Pharmaceuticals, a top-performing stock in the red-hot biotech sector, among others.

There are key differences between these three examples: One is in M&A, another a recent IPO and the third as stock that has traded publicly for a few years. Each operates in a different sector. But they’ve all sparked debates that have a similar dynamic – a disconnect between those who see strategic sense in betting on future growth, and those who say the valuation is unjustified by any logic.

And there seems to be no bridging the disconnect between the two.

Facebook’s acquisition of WhatsApp. Announced four weeks ago, the proposed deal would offer $4 billion in cash and the rest in Facebook shares, which most analysts expect to keep rising for the next year at least.

Why it’s so promising: Facebook needs more must-have apps to remain relevant on mobile. WhatsApp attracted 450 million users with 55 employees and no marketing. Facebook gets better exposure to emerging markets and strengthens its ownership of the photo-sharing market. WhatsApp could conceivably contribute billions to Facebook’s annual revenues. Importantly, Facebook keeps Google from owning WhatsApp.

Why it’s so overvalued: Facebook is paying $345 per employee. For a precedent you have to go back to the dot-com era. Valuing a company on a per-user basis was a desperate metric used in that same era, which didn’t end well. Monetizing WhatsApp faces challenges: Competition is rife (WeChat, KakaoTalk, Kik), and some may undercut WhatsApp’s subscription fees or offer a richer platform of services.

Castlight’s IPO. Founded in 2008, the San-Francisco-based company uses cloud technology to help companies manage healthcare costs more efficiently. Castlight filed to raise $100 million last month, but demand bumped its take up to $176 million. The stock rose 149% to $39.80 on its first day of trading last Friday before settling at $37.25 Monday.

Why it’s so promising: Health care is a notoriously opaque industry, and Castlight is early in creating transparency through cloud software. Its founders hail from RelayHealth (acquired by McKesson), VC firm Venrock and Athenahealth, adding cred on Wall Street. Castlight has a $109 million backlog of contracts not recognized yet at revenue.

Why it’s so overvalued: The company listed at 107 times revenue and now trades at 250 times revenue. (Athenahealth trades at 11 times revenue.) It’s lost a total of $131 million to date. Castlight’s involvement in the cloud and healthcare exposes it to two markets subject to speculative investment.

Intercept’s stock surge. The New York-based developer of drugs for chronic liver disease went public in late 2012 at $15 a share and was trading around $60 a share in early January. After phase II trials of a drug was stopped early because of positive results, the stock has since risen as high as $462 last week, a 577% gain year to date.

Why it’s so promising: The drug treats NASH, a liver condition that can lead to liver failure and that affects an eighth of the US adult population. It’s considered an unmet medical need with no approved therapies. One analyst called the news “potentially paradigm changing” while another said the market could be “bigger than Hepatitis C” with sales as high as $4 billion.

Why it’s so overvalued: Intercept has lost $186 million to date, yet its market cap has gone from $1 billion in January to $8 billion today, and analysts are saying it could rise to $17 billion. The NASH drug has passed a key obstacle but still faces more. The phase II results don’t necessarily guarantee regulatory approval, and long-term side effects could hurt marketing.

It’s important to note that none of these are fly-by-night companies attempting to mislead investors. Each has a well-run business and a promising story to tell. What’s notable is that the market is willing to price each one on a best-case scenario that lies several years down the road. And that’s assuming nothing will go wrong.

No investor wants to be left out of the next big thing. And yet the willingness to invest in sunny, best-case scenarios is something that was absent from the market even a couple of years ago, but is growing more commonplace in 2014. Back then, companies with nine-digit losses couldn’t squeak into the markets. And tech giants like Facebook were focusing on modest acqui-hires.

We’re in a different market now. One where valuations are starting to resemble those of 15 years ago. The difference this time is many of the highly valued companies have a persuasive story to tell. But even a good story can lead to disappointment when it’s priced to perfection.

MONEY Investing

Fixing the Holes in Your 401(k)

Employer-sponsored retirement plans are getting better, but they've still got plenty of holes. Here's how to plug them.

Prodded by Washington, the 401(k) industry has in recent years cut fees, increased participation, and made it generally easier for Americans to invest in these tax-advantaged retirement accounts.

Still, shortcomings remain. And some of the fixes that have improved the overall system may actually be impeding your progress.

“You’ve got be careful,” says Rick Meigs, who runs 401khelpcenter.com, an industry website that tracks trends in the retirement marketplace. “There are always unintended consequences.”

In the stories that follow you’ll learn the various ways that your plan is letting you down. More important, you’ll find out how to make the best out of a savings tool that — holes and all — is still likely to be your best bet at being able to fund a pleasant and prosperous retirement.

Leak No. 1: Auto-enrollment is a double-edged sword

The push to enroll employees in 401(k)s automatically has generally been praised — for good reason. Participation rose from 67% in 2005, before these programs began, to 78%, as young workers have been swept into the system. But for long-time savers, auto-enrollment cuts a different way.

Related: What is a 401(k) plan?

Most companies set aside a fixed pot of money for 401(k) matches and other benefits. As the pool of eligible employees grows, firms can either set aside more or cut the size of the benefits. It’s too early to tell how companies will respond in the long run, but a study affiliated with the Boston College Center for Retirement Research found that plans without this feature matched 3.5%, vs. 3.2% for auto-enroll plans.

Another unintended consequence: Many plans default workers in at a meager 3% savings rate, in part to avoid scaring off new participants. You know that’s too little. What you may not realize, though, is that a low default rate for newbies can help “frame” what even experienced hands think is an adequate level of saving. In auto-enroll 401(k)s, those making more than $100,000 sock away 9.3% of their pay, vs. 10.7% for highly paid workers who aren’t in such plans.

“People look at the 3% and think, ‘That’s what the company is recommending. So if I’m saving twice as much, that must be a good thing,’ ” says Rob Austin, director of retirement research at the benefits consultant Aon Hewitt. Yet even three times the default is probably insufficient, as many planners advise socking away 15% of your pay, including the match.

WHAT TO DO

Make automation work for you. Two in five auto-enroll plans offer a different automated function — one that boosts your contribution rate over time unless you opt out, according to the Plan Sponsor Council of America. If yours doesn’t, you may still be able to opt in to such a tool. Even if you think you’re disciplined enough to make these adjustments yourself, sign up just in case.

Bank your raises as you go. At the same time some businesses are cutting their match, many are restoring bonuses and raises. Commit to saving at least a portion of those pay hikes before you get them, says Shlomo Benartzi, chief behavioral economist at AllianzGI.

“People tend to feel the pain of losses more than the pleasure of gains,” he says. In this context, money “lost” to savings “feels like a loss.” But that won’t be the case if you sock the raise away before you ever have a chance to enjoy it.

Is your 401(k) plan letting you down?

Send a letter to the editor to money_letters@moneymail.com.

401(k) Fees: Still Too High

401(k) Advice Could Come at a Cost

Does Your 401(k) Offer Too Few Index Funds?

401(k) Waiting Periods Take a Toll

Your Company’s Stock Is Too Risky for Your 401(k)

MONEY

401(k) Fees: Still Too High

401(k) fees are beginning to come down, but maybe not enough.

Employer-sponsored retirement plans are getting better, but they’ve still got plenty of weak spots. MONEY looked at six holes you might see in your 401(k) plan, and some fixes you can make to address them. Below, how to shore up one of those leaks: the fees you pay.

Leak No. 2: Fees are falling, but perhaps not enough

Thanks in part to Labor Department regulations, which came on the heels of a string of class-action lawsuits, 401(k) costs are beginning to come down. The average investment fee charged by stock funds in these accounts, for instance, fell from 0.74% of assets annually in 2009 to 0.63% in 2012, the last full year for which data are available, according to the Investment Company Institute, the mutual fund industry’s trade group. But those figures mask a two-tiered system. Employees at large companies with billion-dollar plans frequently get access to ultra-cheap investment options that are usually available only to institutions. Work for small businesses that lack economies of scale and retirement-market expertise, and you’re probably paying significantly more. For example, the average fee that investors pay in plans with less than $50 million in assets is 0.94%, according to the financial information company BrightScope. A few plans charge fees as high as 3%.

WHAT TO DO

Take full advantage of your employer match. Even if your plan is expensive, it almost always makes sense to contribute enough to get the full match, which is essentially free money.

Then look for alternatives. Albany planner Walt Klisiwecz says if your plan charges total fees above 1.25% of assets per year, you should look for a work-around. He recommends that investors in pricey plans put their next incremental dollars into traditional or Roth IRAs, where you can buy any fund you want. Those who aren’t allowed to deduct traditional IRA contributions because their adjusted gross income is above $70,000 for singles or $116,000 for married couples — or who expect to be in a higher tax bracket at retirement — should go with the Roth. Roth contributions aren’t deductible, but withdrawals at retirement are tax-free. You can save $5,500 a year in a Roth ($6,500 for those 50 and older) if you’re single and earn $114,000 or less or married and make $181,000 or less.

Stick with the lowest-fee funds in the plan. After you max out on your IRA, go back and redirect any extra money to your 401(k). But go with the lowest-fee funds in your plan (see Leak No. 4) to make the best of a bad situation. “You’ve just got to hold your nose,” Klisiwecz says.

Is your 401(k) plan letting you down? Send a letter to the editor to money_letters@moneymail.com.

MONEY Investing

401(k) Advice Could Come At a Cost

Investing for retirement can be confusing, but your employer's 'free' 401(k) advice may come at a price.

Employer-sponsored retirement plans are getting better, but they’ve still got plenty of weak spots.

MONEY looked at six holes you might see in your 401(k) plan, and some fixes you can make to address them. Below, see another way your retirement plan might be letting you down — with handholding that isn’t free.

Leak No. 3: Plans are offering more advice but…

Companies understand that most Americans are confused about investing for retirement. Roughly half of large plans now offer access to some type of investment management, up from 11% in 2007, according to Hewitt. These services don’t simply tee up suggestions on what to do with your account. They pick funds for you and adjust your portfolio automatically.

Vanguard, one of the largest 401(k) providers — largely by improving participants’ stock and bond mix. In reality, though, there are no guarantees. Managed accounts in Vanguard’s plans returned just 1.9% a year on average between 2007 and 2012, vs. 2.3% for DIY participants.

Part of the problem: Handholding isn’t free. In some company plans these add-ons will cost as much as 1% or more of your assets a year, eliminating most or all of the potential advantage. The most popular providers, Financial Engines and Morningstar’s Retirement Manager program, charge about half that or less.

Still, those costs are on top of the investment fees you’re paying for the underlying funds, which could run you another half or full percentage point — dragging down your returns.

WHAT TO DO

In your thirties and forties: All the advice you may need is guidance on how much to save (answer: shoot for 15%) and a target-date fund, says Lori Lucas, defined-contribution practice leader at the investment consulting firm Callan.

Target-date funds — all-in-one portfolios that expose you to stocks and bonds and that automatically grow more conservative over time — are a form of professional management available in two-thirds of plans.

In your fifties and beyond: At this stage, you’ve accumulated a sizable sum and the idea of handing over investment decisions to a pro may not sound bad.

“This is especially true for near retirees,” says Lucas. “You are making some complex decisions that are both major and irreversible.”

Related: Should I delay my retirement?

The one in four workers 56 to 65 who held more than 90% of their 401(k)s in equities heading into the financial crisis certainly could have used such help. Don’t expect miracles, though. Hewitt found that on average investors who sought help performed about the same as investors who were on their own in 2008. They did, however, perform better in 2009 when stocks bounced back.

Is your 401(k) plan letting you down?

Send a letter to the editor to money_letters@moneymail.com.

 

MONEY Investing

Does Your 401(k) Offer Too Few Index Funds?

Research shows that passive investing -- buying index funds that hold broad swaths of the market -- is your best option.

Employer-sponsored retirement plans are getting better, but they’ve still got plenty of weak spots.

MONEY looked at six holes you might see in your 401(k) plan, and some fixes you can make to address them. Below, see another way your retirement plan might be letting you down: a limited choice of index funds.

Leak No. 4: You can have index funds, but only a few

There’s a vast body of research that shows passive investing — through index funds that simply buy and hold large parts of the market — is your best bet. That’s because most index funds charge a fraction of the fees actively managed portfolios do. And saving as little as half a point in expenses annually over 35 years could easily generate $100,000 more in lifetime savings, assuming a modest 6% annual return.

“I wouldn’t put a penny in anything else,” says Miami financial adviser Frank Armstrong.

Related: 401(k) advice could come at a cost

Then why do so few plans let you index your whole portfolio? Only half offer index funds for foreign equities or intermediate-term bonds. And fewer than two in five let you index small-company stocks.

In most cases, your employer doesn’t pay for record keeping or other administrative costs directly. Those are covered by fund fees. Since index funds charge very little, plan designers fear that including too many may make plans unaffordable. Many 401(k)s are also run by fund or insurance companies that “want to offer their own products,” says Brooks Herman, head of data and research at BrightScope.

WHAT TO DO

Start with what your 401(k) does offer. Ninety-five percent of plans include an index fund that tracks the S&P 500 or a similar index. These blue-chip investments are likely to be the single biggest piece of your strategy, making up as much as half your total portfolio in your forties.

Next, look at your actively managed options. The average expense ratio for indexed foreign funds, small-stock funds, and bond funds are 0.59%, 0.48%, and 0.31%. If you have access to active funds with fees close to those levels, they may be a decent alternative.

Finally, think outside your 401(k) box. While you can contribute only about a third as much annually in an IRA as the 401(k) max, that’s not necessarily a problem. In a balanced portfolio of stocks and bonds, your fixed-income weighting may only amount to about a third. You may have also rolled over old 401(k)s into IRAs. Those balances probably aren’t huge, but you can use them for exposure to small or foreign stocks, which may account for just 10% to 20% of your total portfolio.

Is your 401(k) plan letting you down?

Send a letter to the editor to money_letters@moneymail.com.

MONEY

Mutual Funds Gone Down the Drain

Forty-one percent of U.S. mutual funds operating 10 years ago, closed before 2014.

Your mutual fund does worse when its close to extinction. Here's what to do about it.

Of all traditional U.S. mutual funds operating a decade ago, four in 10 shut down before 2014, reports Morningstar.

Why care? Even though you can cash out (or get shares in a fund absorbing the loser), costs rise and performance falls as the end nears, says Daniel Kern, president of investing firm Advisor Partners, who has studied closures.

Here’s how not to get swept away in the failures.

Stopping your losses

Seek high marks. Eight in 10 funds given five stars by Morningstar in 2002 lived to 2012; only 39% of one-star funds did, according to a study Kern co-wrote. Stewardship grades, gauging how shareholders are treated, count too: A and B funds outlast low-ranked ones, says Morningstar’s Laura Lutton.

Don’t think small. Bigger funds aren’t always better, but those that stay small or shrink too much have high failure rates. Be wary of portfolios with assets well under $250 million, says Kern’s collaborator Tim McCarthy, author of The Safe Investor.

Exit early. If you think a fund will close, sell. Funds lose an average of 3.6% in their final 18 months, Vanguard has found. Has your fund already merged into another offering? Be picky, advises San Diego planner Leonard Wright, and sell the new one if you wouldn’t have bought it otherwise.

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