Starting my 401k right now?

[ginger.al]

With 10% of my salary..

35% Van Kampman Equity Income
35% Alger Capital Appreciation Class R
10% Blackrock international value
20% ML Retirement Reserves (7dayYield:2.45%)

How does this look? Should I go ahead with this plan?

[jIM_Ohio]

It should be noted that 401ks are an above the line reduction of income. It can make you eligible for tax credits, tax deductions and similar which you would not be eligble for if you contributed to a Roth before looking at your tax situation.

If you increased 401k by 2-4% to reduce income more, then the income reduction made you eligble for $2000 worth of child tax credits and similar credits, you just got 2k more than you would have (2k is in 401k and 2k is in your pocket or just 2k in your pocket- the choice is yours).

[jIM_Ohio]

With 10% of my salary..

35% Van Kampman Equity Income
35% Alger Capital Appreciation Class R
10% Blackrock international value
20% ML Retirement Reserves (7dayYield:2.45%)

How does this look? Should I go ahead with this plan?

Why 20% cash? Did you consider the government bond fund.
what is capital appreciation?
I did not see a specific allocation for the 80% equity and would guess capital appreciated and equity income are similar funds with similar holdings. Choose 1 and diversify more. 10% international with 80% equity is low, IMO.

[ginger.al]

Why 20% cash? Did you consider the government bond fund.
what is capital appreciation?
I did not see a specific allocation for the 80% equity and would guess capital appreciated and equity income are similar funds with similar holdings. Choose 1 and diversify more. 10% international with 80% equity is low, IMO.

Thanks for the suggestion, Jim.

I pick cash over government bond fund because I was looking at the return after 10 years and government bond fund has a really low return, less than 1%.

Jim, you seem really knowledgeable about this, alot more than me. Would you suggest a ratio in which I should invest? I thought that I should be diversifying that's why I picked 4 different funds.

[jIM_Ohio]

Thanks for the suggestion, Jim.

I pick cash over government bond fund because I was looking at the return after 10 years and government bond fund has a really low return, less than 1%.

Jim, you seem really knowledgeable about this, alot more than me. Would you suggest a ratio in which I should invest? I thought that I should be diversifying that's why I picked 4 different funds.

But are the 4 funds different?

I don't know what the capital appreciation or equity income fund invest in. Look at their top 10 holdings (listed on most websites which evaluate funds). If one holding is the same, you need to eliminate of the funds and choose a different one which has no overlap in top 10 holdings.

What is the 10 year, 5 year, 3 year and 1 year returns on the cash and bonds? Surprised to see a bond fund with a 1% 10 year return (I would think around 5% is more normal).

You need to find a bond fund if possible for a good 80-20 mix.

[amarowsky]

I'm Roughly the same age as you Ginger, My company's 401k works though vanguard under my current contract. Here is all the vanguard mutual funds I have and the percentages I distribute them by

Royce Premier Fund (RYPRX) - 40%
Vanguard Growth Index Fund Investor Shares (VIGRX) - 10%
Vanguard International Growth Fund Investor Shares (VWIGX) - 40%
Vanguard Windsor II Fund Investor Shares (VWNFX) - 10%

If you can't use Vanguard for your 401k you can find similar funds that support the same asset division (roughly) that I have in my vanguard stocks. Right now all my funds are down, but I just kicked up my 401k another %4 percent to trying and boost my retirement savings while the market is so ripe for picking and buying funds. This way you have a net gain in total units when it comes time to get old and start moving to flordia (like the law says you must when you turn 60 and live in michigan) ; )

[amarowsky]

If you dont want to individually look up all those funds, they are currently 100% stocks. I figure an unknown years from now (most likely <20) ill put a significant chunk of my savings assets into some securities, bonds, cd's, or even possibly blue chips. But the only way I will do that sooner is if I can pinpoint (or get near) a good market spike in the upward direction so I can toss a ton of money into some secure investments that stay above inflation and make me a little bit of Clams on the side.

(that way by age 41 ill know whether I'm going to be drinking Guiness or Bush Light upon retirement)

[KGeary]

KGeary is wrong, and his advice represents someone who knows little about saving or taxes.

Money goes into a 401k pre tax
Money goes into a Roth IRA post tax

This means that if you put $5000 in your 401k you need to earn only $5000- all money goes in before taxes.
You will need to earn $6250 to put $5000 into a Roth IRA or Roth 401k.

I have both a 401k (contribute 11% and get 2/3 match on first 6%) and a Roth IRA (contribute max of $5000).

My 401k choices are cheap but generic (no way to look up ticker symbols). My Roth is with T Rowe Price. My 401k reduces my taxes such that instead of earning $6250 to put $5000 in my roth, I only need to earn $5750- saved me $750 in taxes by upping the 401k a few percent.

I would look at Van Kampman Equity Income (I like dividend funds)
Franklin small value or Oppen small cap
Oppenheimer emerging markets
Blackrock international value
Blackrock mid cap

and try to build from there- butthat would be me putting funds into my allocation. You want 60-40, so emerging markets is out, and you would need to add a bond fund to this mix like AIM real estate and or Blackrock government income.

You're wrong.

The 401k doesn't give you the flexibility needed to make the right investment decisions. If you ask any financial advisor worth their weight, they'll tell you to invest up to the match and then fund a Roth IRA. The Roth IRA is far superior to the 401k.

Screw reducing your taxable income. Who cares? The money will be taxed as income when you take it out. The Roth will grow tax free and the contributions you will take from it will be tax free. That's far superior.

As stated before; any good advisor will tell you to invest up to the match and then put the rest in a Roth IRA.

[kork13]

You're wrong.

Screw reducing your taxable income. Who cares? The money will be taxed as income when you take it out. The Roth will grow tax free and the contributions you will take from it will be tax free. That's far superior.

Yes, it will be taxed later on... However, for many (most?) people, when they are retired they'll be in a lower tax bracket than they were in when they contributed to the 401k, which means they would pay less taxes on the contributions. That's fundamental to the 401k, the primary reasoning behind it being tax deferred. For some people Roths are much better, particularly younger people who are still in a low tax bracket. But 401k's are also very good for people in the middle of their careers who may make too much to contribute to a roth. Please don't try to burn/scare people away from 401ks because of some bias you may have--they ARE a very valid and worthwhile retirement savings vehicle.

I'm sorry that you're so dead-set against 401k's. However, you have to face it--there are some distinct advantages to them. Higher contribution limits (5k v. 15.5k), some people can't contribute to roths due to high incomes, contributing to a 401k can reduce your overall AGI enough to keep you from being pushed into the next-higher tax bracket, and so on. The advantages are there whether you and your "financial advisors worth their weight" want to admit it or not. Personally, any advisor who staunchly argues, as you are, that 401k's aren't worth it .... well, aren't worth it. I'd never hire or work with them.

[atomicrc11]

I'm Roughly the same age as you Ginger, My company's 401k works though vanguard under my current contract. Here is all the vanguard mutual funds I have and the percentages I distribute them by

Royce Premier Fund (RYPRX) - 40%
Vanguard Growth Index Fund Investor Shares (VIGRX) - 10%
Vanguard International Growth Fund Investor Shares (VWIGX) - 40%
Vanguard Windsor II Fund Investor Shares (VWNFX) - 10%

I'd be careful with that 40% in international stocks. Generally most people recommend between 10% to 20% invested in international stocks. I keep it around 15%.

[ginger.al]

Jim, I took a look at the top 10 holdings for both Van Kampman Equity Income R and Alger Capital Appreciation Class R and they're completely different.

amarowsky, unfortunately, my company does its 401k through Merrill Lynch, so these are the choices they gave me.

With 10% of my salary..

40% Van Kampman Equity Income R (ACESX)
30% Alger Capital Appreciation Class R (ACARX)
27% Blackrock International Value Fund (MAIVX)
3% BlackRock Government Income Portfolio (BGIBX)

How does this sound?

[jIM_Ohio]

You're wrong.

The 401k doesn't give you the flexibility needed to make the right investment decisions. If you ask any financial advisor worth their weight, they'll tell you to invest up to the match and then fund a Roth IRA. The Roth IRA is far superior to the 401k.

Screw reducing your taxable income. Who cares? The money will be taxed as income when you take it out. The Roth will grow tax free and the contributions you will take from it will be tax free. That's far superior.

As stated before; any good advisor will tell you to invest up to the match and then put the rest in a Roth IRA.

I care about taxes. There is more than one way to put money into a Roth (conversions vs contributions) and I would prefer to convert at 15% taxes than contribute at 25% taxes. Right now I contribute at 15% taxes too.

Any good advisor will tell you a 401k and Roth are the SAME if tax rates while working and tax rates while retired are the SAME. That same advisor should also tell you if your tax rate increases in the future, choose the Roth, if your tax rate will be lower in the future, choose the 401k.

Not sure who your advisors are, but my advisors suggest I pay less taxes NOW using a 401k and only use Roth to point where I am in 15% tax bracket, with the plan to convert more at 15% when the opportunites arise.

early retirement provides the opportunity to convert up to 83k per year at 15% tax bracket paying 10% less tax than if I contributed at 25% tax bracket while earning money working.

[jIM_Ohio]

Jim, I took a look at the top 10 holdings for both Van Kampman Equity Income R and Alger Capital Appreciation Class R and they're completely different.

amarowsky, unfortunately, my company does its 401k through Merrill Lynch, so these are the choices they gave me.

With 10% of my salary..

40% Van Kampman Equity Income R (ACESX)
30% Alger Capital Appreciation Class R (ACARX)
27% Blackrock International Value Fund (MAIVX)
3% BlackRock Government Income Portfolio (BGIBX)

How does this sound?

Will 3% government income reduce your risk enough?

Other than that question, rest looks good if the equity income and capital appreciation really have different holdings.

They have different holding- equity income is large value and value tilt, capital appreciation is large and mid cap growth tilt.

very little small cap though.

[jIM_Ohio]

I'm sorry that you're so dead-set against 401k's. However, you have to face it--there are some distinct advantages to them. Higher contribution limits (5k v. 15.5k), some people can't contribute to roths due to high incomes, contributing to a 401k can reduce your overall AGI enough to keep you from being pushed into the next-higher tax bracket, and so on. The advantages are there whether you and your "financial advisors worth their weight" want to admit it or not. Personally, any advisor who staunchly argues, as you are, that 401k's aren't worth it .... well, aren't worth it. I'd never hire or work with them.

Kork- good response. Missed this before my other 2 replies.

The 401k can also keep a person eligible for Roth if they contribute more as they earn towards the 160k AGI cap for Roth contributions. But again any advisor which did not know that or offer that advice is more like a scam commission artist than a friendly advisor.

[ginger.al]

I ended up doing the following..

With 10% of my salary..

40% Van Kampman Equity Income R (ACESX)
30% Alger Capital Appreciation Class R (ACARX)
25% Blackrock International Value Fund (MAIVX)
5% BlackRock Government Income Portfolio (BGIBX)

Thanks so much, Jim. I really appreciate it.