The Saving Advice Forums - A classic personal finance community.

Announcement

Collapse
No announcement yet.

Financial Newb / 401k Help

Collapse
X
 
  • Filter
  • Time
  • Show
Clear All
new posts

  • Financial Newb / 401k Help

    Greetings. I am hoping to receive some help with choosing my 401k investments amongst the choices I am given on my provider's website. I've worked for my company for 18 months now & I contribute 6% with a 4% company match to my 401k.

    I had no idea what I was doing when I set up my account on the MERCER website that handles my 401k. So I pretty much just divided it evenly into ALL of the options it gave me. There's $10,000 spread evenly through everything listed below. It all looks like Chinese to me I don't understand it at all, all I know is I'm young (26) and prefer higher risk.

    Here are the options on the website.. http://imgur.com/IXcwaro.jpg

    Thanks in advance for any information
    Last edited by isaac; 07-24-2014, 03:36 AM.

  • #2
    You have a lot of choices in there, but if you aren't interested in choosing an asset allocation and rebalancing it regularly, then you are better off just choosing the Target date fund. The target date fun at the bottom of your list will automatically rebalance and automatically shift to a more conservative allocation as you get closer to retirement. You can put all of your money into that one fund and achieve good diversification. Spreading it out between all of the funds is more likely to cost you more in fees than it will increase your returns.

    You can go to JPM's website and see how that fund is allocated. Your chart doesn't list the ticker symbol, but I think this is the right link:
    http://jpmorgansmartretirement.com/s...irement/SR2045

    Comment


    • #3
      I would put 10% each into:

      Vanguard prime money market
      Col trust stable govt fund
      Pimco total return
      Vanguard Inflation protected securities

      Vanguard Ins Index fun
      Vanguard small cap index
      Vanguard mid cap index
      Vanguard TTL INTL Stk index
      MFS Institutional Equity
      Toyota stock

      Then I would look up Asset Allocation (ggogle it)

      and decide if I gave you good or bad advice

      Comment


      • #4
        I started in that same boat a few years ago. Just knew I needed to save!

        Target date funds are good starting points if you just want to kind of set it and forget it. They're set up to be all in one funds - so you can have everything in it and still be diversified. Bad thing is you have to go with the setup they use.

        A good starting point may be the Boglehead Wiki (bogleheads.org/wiki/Bogleheads®_retirement_planning_start-up_kit) to get a little better idea what things are. (I'm still clueless on some things myself... Small cap? Large cap? Greek?) One other thing to keep in mind is expense ratios. Lower is better, it's basically the expense for you to buy into/hold that fund. I usually aim for less than about 0.25 myself. Some of the ones in the options you have available are kind of high.

        Also, keep in mind your asset allocation (basically, how much do you have in bonds/domestic stock/international stock/real estate/precious metals/etc) is for your ENTIRE retirement portfolio, not just one account. You can open up a traditional or Roth IRA (individual retirement account, traditional is taxed later, Roth is taxed now but no taxes on earnings) if you feel your 401k doesn't offer everything you want. The bad thing is you can only put 5500/year into an IRA vs the 17k limit on 401k contributions, but it's something else to think about.

        At this point, if you wanted to keep it pretty simple, you could aim for something like 15-20% bonds and the rest in stocks. (Of stocks, you could aim for something like 1/3 international and 2/3 domestic.) the good thing is that it's all up to what you feel comfortable with. The bad thing is that when you have no idea what anything means, it's hard to tell if you're comfortable with your setup or not.

        Comment


        • #5
          This is what it looks like right now. -> http://i.imgur.com/ZLvSvvl.jpg

          There are a lot of different target date years (2010 - 2050), I chose 2045.

          Originally posted by jIM_Ohio View Post
          I would put 10% each into:

          Vanguard prime money market
          Col trust stable govt fund
          Pimco total return
          Vanguard Inflation protected securities

          Vanguard Ins Index fun
          Vanguard small cap index
          Vanguard mid cap index
          Vanguard TTL INTL Stk index
          MFS Institutional Equity
          Toyota stock

          Then I would look up Asset Allocation (ggogle it)

          and decide if I gave you good or bad advice
          Question: Why Vanguard Prime Money Market and Col Trust Stable Govt Fund when their performance seems to be the worst option I have? These seem like safe / old people options. Should I be messing with them yet??

          Comment


          • #6
            I think Jim is demonstrating what a co-worker of mine call the splatter gun approach. Just shoot a bit at everything and you'll almost certainly hit something good. You'll probably hit something bad too, but in the end you might hit more good than bad.

            If you Google asset allocation there are tons around that offer samples based on various ages, goals, and risk tolerance. I know the boglehead forums also have several sample portfolios that you can look at.

            I'm a little jealous that your 401K has so many of the Vanguard Index funds. The ones my husband and I have access to are overloaded with fee heavy funds. Even your Target Retirement Fund is well under 1% in fees. If you don't like to fiddle around much that's certainly a choice to consider.

            Comment


            • #7
              Start with your asset allocation plan. Google "asset allocation tool" and try a few. There are dozens of free ones online.

              Once you determine a reasonable asset allocation plan, choose funds to flesh them out.

              So, you might come up with something like this:

              US Large Cap Stocks 30%

              US Mid/Small Cap Stocks 20%

              Foreign Stocks 30%

              US Bonds 20%

              If you want to use a target retirement fund, that is a reasonable choice too. Personally, I would choose the excellent index funds you have available to you over the mediocre target retirement funds you are being offered.

              Personally, I would avoid both cash and individual stocks. Avoid cash because you are young and need your money to grow. Avoid individual stocks because Modern Portfolio Theory tells us they add a great deal of risk to your portfolio for no increase in expected return.

              Comment


              • #8
                Presuming you are young (20's) I would keep it very simple for the first few years. I would put 75% into Vanguard Inst., mid cap, and small cap index funds (evenly divided) and 25% into Vanguard Intl. Index. It is the best way to take advantage of broadly diversified funds. I would monitor the performance annually to confirm your choices.

                Comment


                • #9
                  Originally posted by isaac View Post
                  This is what it looks like right now. -> http://i.imgur.com/ZLvSvvl.jpg

                  There are a lot of different target date years (2010 - 2050), I chose 2045.



                  Question: Why Vanguard Prime Money Market and Col Trust Stable Govt Fund when their performance seems to be the worst option I have? These seem like safe / old people options. Should I be messing with them yet??
                  You are focusing on one detail (or 1-2 specific fund recommendations).

                  Did you google asset allocation yet?

                  If you learn about asset allocation, and ask your question in terms of the allocation, you might answer your own question.

                  If you don't know about asset allocation, then my answer wouldn't make sense.

                  Comment


                  • #10
                    Originally posted by JulieAlbright View Post
                    I think Jim is demonstrating what a co-worker of mine call the splatter gun approach. Just shoot a bit at everything and you'll almost certainly hit something good. You'll probably hit something bad too, but in the end you might hit more good than bad.

                    If you Google asset allocation there are tons around that offer samples based on various ages, goals, and risk tolerance. I know the boglehead forums also have several sample portfolios that you can look at.

                    I'm a little jealous that your 401K has so many of the Vanguard Index funds. The ones my husband and I have access to are overloaded with fee heavy funds. Even your Target Retirement Fund is well under 1% in fees. If you don't like to fiddle around much that's certainly a choice to consider.
                    There was a method to my suggestions, and I recommend to poster the same allocation I hold in my own 401k plan.

                    Comment


                    • #11
                      Originally posted by Petunia 100 View Post
                      Start with your asset allocation plan. Google "asset allocation tool" and try a few. There are dozens of free ones online.

                      Once you determine a reasonable asset allocation plan, choose funds to flesh them out.

                      So, you might come up with something like this:

                      US Large Cap Stocks 30%

                      US Mid/Small Cap Stocks 20%

                      Foreign Stocks 30%

                      US Bonds 20%

                      If you want to use a target retirement fund, that is a reasonable choice too. Personally, I would choose the excellent index funds you have available to you over the mediocre target retirement funds you are being offered.

                      Personally, I would avoid both cash and individual stocks. Avoid cash because you are young and need your money to grow. Avoid individual stocks because Modern Portfolio Theory tells us they add a great deal of risk to your portfolio for no increase in expected return.
                      +1
                      more text to get by filter
                      +1

                      Comment


                      • #12
                        Originally posted by isaac View Post
                        Greetings. I am hoping to receive some help with choosing my 401k investments amongst the choices I am given on my provider's website. I've worked for my company for 18 months now & I contribute 6% with a 4% company match to my 401k.

                        I had no idea what I was doing when I set up my account on the MERCER website that handles my 401k. So I pretty much just divided it evenly into ALL of the options it gave me. There's $10,000 spread evenly through everything listed below. It all looks like Chinese to me I don't understand it at all, all I know is I'm young (26) and prefer higher risk.

                        Here are the options on the website.. http://imgur.com/IXcwaro.jpg

                        Thanks in advance for any information
                        I consider it a mistake to ask strangers on a web site what investments you should be holding. You need to educate yourself (it really doesn't take much time), and make these decisions yourself.

                        Start here: http://www.bogleheads.org/wiki/Bogle...g_start-up_kit
                        seek knowledge, not answers
                        personal finance

                        Comment


                        • #13
                          As your contributions add up and your retirement grows over time you can make changes to fine tune your holding. I suggest you make a start with Vanguard's low fee, low cost MER [Management Expense Ratio] Index Fund. After one year's experience and a bit more understanding of a 401K you could re-direct sums to a Vanguard's International Fund for example. Meanwhile are you amenable to reading something like The Millionaire Next Door or The Automatic Millionaire which are both easy reads and can gelp you understand what we're trying to explain. You should be able to download either from your library or used version.

                          Comment


                          • #14
                            If you do some internet research a lot of places will probably tell you something like have 85% stocks and 15% bonds with your age and risk tolerance. Personally, my 403b (same as 401k, just for nonprofit or religious institutions) is 100% stocks. I'm 33 and can tolerate the risk, and with interest rates likely to continue to rise I don't think right now is the best time to buy bonds. To put it simply, stocks are riskier than bonds in the short term but payout much better in the long term so the closer you get to retirement the higher the percent of "safe" assets (like bonds and money markets) you should have in your portfolio since you don't have the time to make up your losses in a volatile stock market. The target date funds do this rebalancing automatically, they are a set it and forget it option for investing.
                            The only thing to worry about when picking mutual funds from the Vanguard options (besides percent returns obviously) is the expense ratios, this is the percentage of your investment that you will lose to fees or whatever. Anything under 1% is tolerable, but try to look for something between .3-.5%. I can't tell you what to do, I am a noob as well, but if you don't want to go with everything in a target date fund then you could stick with mostly total market funds, some of the large and/or small cap funds, and a few international or maybe emerging market funds if you're feeling squirrelly, then start slowly reallocating into bonds or money markets in 5-10 years depending. But since you don't know anything about all this, you should probably just stick with a target date fund until you can read more and educate yourself.
                            My wife has a target fund and I have mine all in stocks similiar to the allocation I suggested and I think last year she beat me by 0.7% returns on the year, so you're not gonna miss out on big returns chosing a target date fund over your own picks, especially if you don't really know what you're doing (like me )

                            Comment


                            • #15
                              Originally posted by jIM_Ohio View Post
                              There was a method to my suggestions, and I recommend to poster the same allocation I hold in my own 401k plan.
                              You recommended what YOU hold in your 401k however the OP is 26 and prefers higher risk. Having 40% in fixed isn't fitting that bill.
                              The easiest thing of all is to deceive one's self; for what a man wishes, he generally believes to be true.
                              - Demosthenes

                              Comment

                              Working...
                              X