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How to invest 401K with no risk

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    How to invest 401K with no risk

    Hello everyone. I haven't posted on this forum in over 10 years. Ironically, I was active on here around 2009 during the birth of my first child at age 33. My husband lost his job in 2009 at auto supplier after being there 9 years due to low car sales etc.. Husband's 401K tanked from 100K to 60K around that time. Well here we are again. We survived that ok due to emergency fund, frugalness,and some luck staying healthy. (no obamacare then. that's another story, boy is it) That first child is now 11 and my second is 5. I need major guidance when it comes to investing. My husband got his old job back he lost in 2009 15 months later when work picked up there, and held it until January of 2019 with zero layoffs. He lost it due to nothing with covid jan 2020). Company was bought by something called a capital investment firm type thing. They chopped some positions. Husband's was one. Guess what? He got a new job in February 2020. He's worked all through the pandemic going strong. (so far at least) He got lucky. His job in Cad type work is very specialized. He also applied for dozens of others with no word back.

    After my husband went back to work in 2010 he started contributing to the 401K again and did every year. (at least 10 to 15% I would estimate a year of his modest income of about 50K) I am a stay at home mom. He's hourly so income has varied on overtime. When he got let go in January, I looked at his 401K which I am ashamed to admit we never do. It was invested in target date retirement account of Target 2020 I believe. He is 49 now, and plans to work at least 10 to 12 years if not more from here, but I chose target date 2020 bc I figured it was a way to invest more conservatively. Well it turns out that it made some money in 2019 but low and behold I was horrified to find so many fees. We had a lot of 401k auditing fees prorata the company passed onto the employees to the tune of over 2 grand a year I never saw. (smallish company with 401k assets of under 4 million) By the way, he never got a 401K match so this is all our money. The account had about 258K when I checked it in March.

    I rolled the entire 401K into Fidelity into a traditional roth where it has sat in a money market since then. I wanted it out of the old work's account. I wasn't ready for him to get into the new 401K yet at his new work after feeling burned by fees. Yes, I see it is normal for 401K to have fees, but these were so bad. So I sold the 401k from old employer low which is bad I know, but don't think I regret it. The day before I sold it to cash, it lost 8 grand in one day. It has about 247K now. It's in cash reserve fund FFFDX making almost nothing. (like 25 bucks last month)
    I don't know what to do. (My hubbbie is amazing, just amazing, great dad, supportive husband, good saver) but investing isn't really his thing so it's on me. He tends to oversimplify things. I tend to overthink. lol. He's all cool with getting back into some stocks. I'm working into it maybe.

    I just feel lost.
    Advisors at fidelity say get back into some stocks. They say we are young, not retiring soon. It's just hard. I knew selling wasn't likely best, but I was able to sleep at night. I have a teaching degree, and not really planning on going back to work soon. Maybe part time one day. We have no family around to help with even occasional childcare. we have managed. My husband got a better job in the sense it was a small raise, and bigger more stable place, but I still don't feel secure for his job. who knows?
    I"m not ready to be seeing investments tank. I've been through 2009, now this.
    What can I do the next year to invest this money in if I am settled into no risk? Adviser from fidelity recommended an annuity to me couple months ago with the money if I wasn't into stocks now or a cd if I wasn't going for the annuity. I didn't trust the annuity. I don't really understand them and internet searches tended to say no good. No clue.

    My question is ok...so if I am against risk...RIGHT OR WRONG....what are my options? IT seems wasteful to make 25 bucks a month on that money we worked so hard to save..we camped instead of Hawaii..only occasional carryout with coupons..my kids have hand me downs etc....we stayed in house at our means almost paid off despite bit cramped(not too bad.).

    Now I go to fidelity to check the positions. I am more confused. I even called fidelity for a quick chat about options. Cd's are paying .15% for a year long cd at fidelity. He said bc the interest rates are so low from fed.

    So I also have a roth ira with a more modest 20 grand at capital 360. I check capital 360 and they have rates of .5% for a year, and the savings there is at .8%

    why is fidelity offering cd's so low?

    Well hello again. I'm sure you'll be hearing more from me as I take steps to be more proactive in my financial life. My problem is I am really good at not spending to much, but kinda cluless at investing, and let's face it...it doesn't super interest me. However, it feels good to be here and learn. (I have more topics I want to talk about too)
    Last edited by Goldy1; 07-12-2020, 09:05 PM.

    #2
    Invest and no risk in the same sentence?

    interest rates are super low right now so you won’t find CDs paying much more than 1% (and typically lower than that as you have seen).

    I think you need to do some research on investing and understand the ups and downs that happen when you are invested. I like “If You Can” (free pdf. Google it) as a start.

    500k to 350k and back to 500k has been the story of my 401k this year.

    Very basics since you are at Fidelity:

    a total US stock fund FSKAX
    a total bond fund FTBFX

    or a target date fund with a low expense ratio. maybe 60:40 stocks to bonds since you are risk adverse but want to see some earnings.

    If you were at Vanguard I would have recommended the balanced index fund (VBIAX)

    you may also want to head over to bogleheads site for more information.
    Last edited by Jluke; 07-13-2020, 12:00 AM.

    Comment


      #3
      I think a set it and forget it approach is best for you. Just put it in the Target2032 fund and be done with it. Then you don't have to worry about checking it or rebalancing. I think these funds are great for anyone that doesn't know a lot about investing. At the least put it in there until you do learn more. Don't keep checking it and worrying about it going down, you do have time. And actually you want the market to go down when you are in the accumulation phase, why? Because you are buying more shares and when the market goes up your shares/balance will go up.

      Fear causes you to freeze and time goes real fast when you don't do anything, so at least get your money moved to a Target date fund.

      Comment


        #4
        First of all--welcome back!
        Secondly, I want to congratulate you on doing the rollover. That was a very smart move. Now, you just need to set up an investment policy statement (IPS). You think about your goals and then you decide how you are going to implement them. You write out what you are going to do in certain situations. Here is a link that explains more: https://www.bogleheads.org/wiki/Inve...licy_statement

        You must think about your investing philosophy, too. I think target date funds are pretty good for keeping folks on the straight and narrow. And, also, it sounds like you looked at the underlying investments and decided the shorter time horizon fund met your investing philosophy a little better. I have found that target funds can be a little more aggressive ( as in a higher percentage of stocks) depending on which company you choose to invest in--there is no standard. The stock to bond ratio you hold is meant to attenuate the risk and dampen some of the highs and lows. Some people accomplish this same thing with a 2 (or 3--some people add international stocks) fund portfolio as mentioned above. The advantage to making your own--is you can tailor the percentages exactly to your preferences. FSKAX has a very low expense ratio.

        Finally, I will swing around to the "no risk" part. When you loose 20% of the value of your portfolio overnight--you can readily identify the volatility risk. But, on the other hand there is inflation risk that occurs over time if you don't invest. Inflation is usually so gradual that you don't even notice it while it is happening. So, don't give up one risk for another.

        Comment


          #5
          I notice you mentioned the 401k lost $8k before you sold it. Did the 401k ever gain $8k in one day? The reason I ask this question is to assess your risk tolerance. Risk and return are inversely proportional. My MIL has a large portfolio that sometimes goes up and down $50k in a day. She has never once mentioned to me that she made $50k in a day, but she always mentions the days that she lost $50k. That is a bias. She fears losing money way more than she enjoys making money.

          If you are that risk averse, that's fine, you just need to plan for that. If you need an 8% return over the next 30 years, you better plan for some volatility like losing $8k in one day.

          Comment


            #6
            Thanks for the responses. I think I am at a middle age type crossroads. Funny to say that as I am active but it's true (sports etc) 2009 was not fun. We did ok. Why? Us both working before, being frugal, loading up emergency fund. My husband got randomly fired when his work got sold 6 months ago. I was gonna re evaluate the stock exposure after that anyway since it happened. I was surprised how much stock even 2020 target dates had from his work 401K. I know it's likely cuz you need to generate even in retirement.

            Then this covid thng happened. I think the problem is it seems job loss comes at the same time the market tanks often. We also don't have extended family around so we are on our own. (I am an only child, his folks passed etc)

            I think emotionally we are affected by what we went through. I think we did a lot of things right. We were frugal. We lived on little. DH went to work. We invested in 401K. Sometimes dumped a bit into roths. I never really analyzed it. I did what you guys suggest. Dump in money. Let it ride. I invested in a conservative target retirement target date years before we knew retirement was liekly as a means to lower stock exposure.

            I just think it's easier to be like hey yea, we're 30 and gonna invest in the long term. You have more to lose when you accumulate more and older.

            My husband is working currently. Been at his job 5 months. Not doing 401K. He wants to. I think if anything I might be ok with letting him put in 2 to 5% of his check into stocks, but to me it would be like a Vegas gamble. I would go in knowing it might lose a bit so I am likely ok with that.

            So maybe I am that risk adverse. Maybe it's wrong financially speaking. I was posting also to get ideas of other options for investing the 250K. If I can make $500 more per year even, I might as well put it in something the best I can.

            I think it's just like....job in auto field...never stable.....inheritance...nothing coming there......2 young kids.....hard for both of us to work and they are not crazy expensive but so not cheap(braces etc) so watching my money tank again just sounds awful.

            I see fall...kids home due to covid....dh laid off(hope not). social distancing(yuck) ..getting dark at 5 pm...and oh add in your retirement tanking.....
            well for now it's sunny, and we are on our way to enjoy the park and library in masks to get books. So much to be thankful for.


            Comment


              #7
              Originally posted by Goldy1 View Post
              My husband is working currently. Been at his job 5 months. Not doing 401K. He wants to. I think if anything I might be ok with letting him put in 2 to 5% of his check into stocks, but to me it would be like a Vegas gamble. I would go in knowing it might lose a bit so I am likely ok with that.

              I'm not going to tell you what to invest in but I am going to tell you that you need to be investing. Your husband has access to a 401k. Is there a company match? He should at least be putting in enough to get the full match if you can do that. Let's say they match 3% if he contributes 6%. That's an instant and guaranteed 50% return on his money. Even if he puts that into the money market account within the 401k, he's earning 50% which is amazing. You shouldn't let that opportunity pass you by.

              As for stocks being akin to Vegas, that's simply not true. If you have decades to go until retirement, putting money into a well-diversified portfolio with low expenses, like a Total Stock Market index fund, is going to outperform any other investment you can find. Sure, you may lose 5% or 10% or 27% one year but you may also gain 6% or 12% or 31% another year. Over time, it will average out nicely on the upside.
              Steve

              * Despite the high cost of living, it remains very popular.
              * Why should I pay for my daughter's education when she already knows everything?
              * There are no shortcuts to anywhere worth going.

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