Anyone will to offer a beginner a little 401K investment advice?

734 Views 14 Replies 9 Participants Last post by Duende, Jun 24, 2007

Duende

Discussion Starter · Jun 14, 2007 (Edited)

Hey all,

I'm going to start investing in my company 401K and had a couple questions. I've never done this before and it's asking me where I want the money placed. If I can copy/paste the table correctly you should be able to see what I'm talking about...

I don't even know where to start with this. I'm going to be investing 6% of my base pay, as I just received a 10% raise and figure that'll still keep me ahead. Also, the company matches up to 6%. As far as where this 6% should go, like the table says below, I have no clue. Any help is appreciated.

EDIT: Oh, the % symbols on the table below is the entry boxes on the form for the amount of percent I want to put into that specific option, equaling 100% total.

Make your entries in increments of 1%. Entries must total 100%.

Asset Class
Investment
Fund
Stable Value
Stable Asset %
Bond
PIMCO Total Return %
Lifestyle
Fidelity Freedom 2000 %
Fidelity Freedom 2010 %
Fidelity Freedom 2020 %
Fidelity Freedom 2030 %
Fidelity Freedom 2040 %
Balanced
Fidelity Balanced %
Large Value
Vanguard/Windsor II %
Large Blend
Vanguard Institutional Index %
Large Growth
Marsico Large Cap Growth %
International
International Equity %
Small Blend
T. Rowe Price Small Cap Stock %

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urbanski

· #2 · Jun 14, 2007

i'd say use something like morningstar, fidelity, or etrade (among many others) to research each fund above.
you should shoot for growth stock mutual funds with a 10+ year track record, achieving at least 10% annual return.
Freedom funds diversify for you among stock and bond funds, but you can diversify yourself should you choose, so i dont recommend them, and they also invest in lower-yield bonds, you're better off just buying a CD if all you care to achieve is 5% APR. Just based on a quick glance at the names above, I'd expect only 2-3 funds to meet those criteria.

As always, i tell folks to pay off ALL debt but the mortgage before invensting anything.

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EcSTSatic

· #3 · Jun 15, 2007

If you are young, you can afford a riskier fund with higher potential. At my age I'm looking for security so I am with Vanguard Windsor among others. They have a higher tier if you have $100K or more to invest.

Duende

Discussion Starter · #4 · Jun 15, 2007

I am young, I'm 26 and just starting my 'career' over after being wounded in Afghanistan. So I found a pretty good job with the electric company here, Portland General Electric, and working my way up the ladder. Just had my 6-month raise so I get to start looking around the company for more fulfilling opportunities.

Anyway, I plan on being with them for at least 20 years. We do have a little debt right now, but will have plenty of money left over for settling those after investing 6% of my base pay before taxes.

Ranger

· #5 · Jun 15, 2007

No one can tell you where to put your money. Follow Urbanski's advice and do some research and educate yourself on these funds. As EcSTSatic said, you are young enough to go into the higher risk funds and ride out the lows to reap the highs.

P.S.
From a Purple Heart vet who never heard this when I came home, a sincere Welcome Home and THANK YOU FOR YOUR SERVICE AND YOUR SACRIFICE.

atriot:

EcSTSatic

· #6 · Jun 15, 2007

Wherever you decide to put it, you are smart to start a 401K now. Right off the bat you get a 100% return with company matching, and your contribution gets taken off of your taxable income. Uncle Sam doesn't get to keep as much of your money. Let the miracle of compounding interest set you on the path to a comfortable retirement someday!

atriot:and thank you! Semper Fi.

Night Wolf

· #7 · Jun 15, 2007

I too am in the process of starting my 401k. My company matches 50 (or 75) cents for the first 6% of my base pay too.... but that isn't until I've been with them a year... after 7 years of being with the company it goes up to 75 cents or a dollar (don't remember at the time) But either way, weather they match or not, I am starting it now, I'll be putting in 6% of my base pay as well.

JP Morgan is the firm.... I haven't got to the part about choosing where to put it right now, that is probably next.

behind-bars

· #8 · Jun 15, 2007

The fidelity freedom funds go by when you plan to retire, the 2040 would adjust the risk/return to a comfortable level if you plan to retire around 2040. basically the longer off the planned dats the more risk the managers take, the 2010 fund is probably all bonds now which is easy to manage yourself with a possible lower expense ratio as opposed to investing in the fund.

I would avoid the freedom funds for the most part, not because they are a bad investment, but because you can replicate them yourself. I would just research a bit and try to diversify somewhat.

Duende

Discussion Starter · #9 · Jun 15, 2007

Okay, thank you all for the advice and suggestions. I've realized since posting this and doing some reading on the 401k site my company uses and doing a little research into the individual options on the list that I'll have some learning to do. I'm probably going to do some cramming this weekend and just study-up so I can make a more informed decision. And then I'll probably ask some more questions and see about professional advice.

We'll see, it actually seems kinda fun and I enjoy staying up on current affairs and the consequences of various actions around the world.

Ranger

· #10 · Jun 15, 2007

Keep in mind that you are not locked into any fund. You should be able to move them if you are not happy with them or change your mind for any reason. I have moved money in mine many times. Some where good moves, others where not.

Kimura-sensei

· #11 · Jun 15, 2007

Like everyone said... do your homework carefully. And I recommend start learning on an investment board. Don't pick a mutual fund or particular investment just because it sounds good or whatever, do your homework and select the one that fits your needs.

For the rookies... Money magazine is a decent place to start learning how to invest. Go to your library and read the past issues. After 1-2 years or so, chuck the magazine out. It'll be too basic for you.

As for your 401k plan. Don't spread out your investments too thin. Pick 3. And try to max out your contributions if you can. The secret to making your nest egg grow quickly is how big you invested early in your life. Since you have time on your hand and you're young, if you can, live below your means, and put as much as you can into your account.

Another thing... you can have an IRA account along with your 401k plan. Open a Roth IRA account. While you may be taxed now, the money in the account continues to grow tax free. The 401k plan, you get taxed when you withdraw, the Roth is tax free. Another benefit is that you have more investment options with the Roth IRA, instead of limited to what your 401k plan has made available to you.

And one last tip... Try to stick with mutual funds that have low management fees. You want total expense fees to be 1.00% or less. Vanguard typically is very low, usually around 0.20% Why is this important? Because in the long term, like your situation, that small 2% expense fee actually steals a lot of your money. By the time you retire, that small expense fee can end up costing you anywhere from 20% to as much as 80% of what you could have had, had you selected a similar fund but with a smaller expense fee.

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MikeB066

· #12 · Jun 15, 2007

Kimura-sensei said:
And one last tip... Try to stick with mutual funds that have low management fees. You want total expense fees to be 1.00% or less. Vanguard typically is very low, usually around 0.20% Why is this important? Because in the long term, like your situation, that small 2% expense fee actually steals a lot of your money. By the time you retire, that small expense fee can end up costing you anywhere from 20% to as much as 80% of what you could have had, had you selected a similar fund but with a smaller expense fee.

This is really good advice, mutual fund fees and expenses can really rob you blind if you aren't careful. Most 401k providers try to offer low cost funds, but make sure you know what the expenses and fees are on a fund.

Starting your 401k as early as possible is a great way of insuring your future. Like everyone else has said, do some research, find a few funds that you like with decent performance history, and a fund manager that has been with the fund at least three or more years and go for it.

Finally, don't obsess on rate of return once you do have your money into a 401k. Keep an eye on it, but don't try to trade to often in response to the market, the fund managers are already doing that. It's best not to reallocate your investments more than twice a year unless you are in a fund that is just going down the drain. Minimizing trading also saves on possible fees and expenses.

urbanski

· #13 · Jun 15, 2007

also ensure the 401K itself does not charge fees above the mutual fund management fees.

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heavymetals

· #14 · Jun 16, 2007

Put in as much money as you can afford.

Most companies match the first 6 or 7%, but the limit is around 15%

A lot of 401k plans offer a "catch up" clause that lets you put in more then the limit.

As for funds, diversify and review your investments.

You can do it daily online if you want, it is that easy.

Watch for "loading" when buying into funds.

I like equity and small cap funds (if your asking).

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Duende

Discussion Starter · #15 · Jun 24, 2007

Well, I've done some reading and have ordered several financial-type magazines through the library. Getting online to read up on boards and the like has been almost impossible with a 2-month old baby girl in the house!

I needed to get this started, though, so of the 6% I'm investing that the company will match, I chose the following selections from the options I had. I just wanted to get the money started, and I'm sure I'll make changes as my education in this grows. If anyone has a comment on how I chose or if I made a glaring mistake, please let me know! Your help has been appreciated!

Fund Investment
Stable Asset 10%
Fidelity Freedom 2030 40%
Marsico Large Cap Growth 30%
International Equity 20%

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