401K advice needed

**buildmybudget** · 02-07-2010, 10:37 AM

Morningstar has some fastastic resources available on their website. Scroll down on the link: How To’s of Retirement Investment Advice and Calculators to where the 401k section is.

**almostalumping** · 03-01-2010, 11:48 PM

Congrats for having $20k in your 401k at 24! I didn't start saving for retirement until I was your age.

Generally, I prefer index funds over actively managed funds because the expense ratios tend to be a lot lower. I read a figure in Kiplinger's or some other finance publication stating that actively managed funds do NOT out-perform the corresponding index fund ~70+% of the time, so I figure why pay more in expense ratios for the about the same outcome. The S&P 500 Index Fund follows the 500 largest companies, so I always prefer that for my own large cap (large companies) fund.

Also, check to make sure that the funds you're in don't have a load/sales charge. I didn't think 401k plans had those types of funds until I saw them in my mom's plan.

Personally, I would stay away from the bond market index fund because interest rates have nowhere to go but up, and that won't fare well for the fund.

If you don't already have a Roth IRA, I would definitely look into opening one since you have so much time for your money to grow tax-free. You can open and fund a 2009 Roth IRA until 4/15/10.

**jIM_Ohio** · 03-02-2010, 06:25 AM

Originally posted by Caldus View Post

I'm very new to 401K's and admittedly I really don't know what I'm doing. I'm trying to read and learn a little each day, but all of this stuff is just dizzying to me. Some background info:

- I'm 24 years old.
- I started contributing to my company's 401K since I started a few years ago.
- I currently have close to 20K right now.
- Here are my asset allocations:

LIFECYCLE FUNDS
Lifecycle Retirement Fund 0%
Lifecycle 2020 Fund 0%
Lifecycle 2030 Fund 0%
Lifecycle 2040 Fund 0%
Lifecycle 2050 Fund 0%

INDEXED FUNDS
Bond Market Index Fund 0%
Balanced Index Fund 0%
S&P 500 Index Fund 0%
International Index Fund 20%
Russell 2000 Index Fund 0%

ACTIVELY MANAGED FUNDS
VIP Stable Value Fund 0%
Large Companies Value Fund 0%
Large Companies Core Fund 0%
Large Companies Growth Fund 40%
Large Co. International Fund 10%
Small/Mid Co Value Fund 0%
Small/Mid Co Growth Fund 0%
Science and Technology Fund 30%

I also have the option to invest in company stock. Basically, I'm very young and from I have read, I should mostly be investing in stocks. I don't know what a lot of these funds are and how I would even choose any of these. I think I need to change my elections since I've been dropping since the beginning of the year. I know I can't get specific advice, but should I generally choose more actively managed funds or more indexed funds or what?

Before you choose funds, you want to pick an asset allocation. That defines the risks you are willing (or not willing) to take.

Two threads to start making you think are here

Saving Advice Forums

http://www.savingadvice.com/forums/investing-banking/50669-questionaire-people-starting-retirement-planning.html

and this one too

Saving Advice Forums

http://www.savingadvice.com/forums/investing-banking/50734-investment-risk-questionaire.html

Your process should be this

1) create a budget, this way you know your expenses (your expenses ultimately control if you can retire, which is why you are investing).

2) Decide to invest

3) Decide how much risk you are willing to take

4) Come up with an asset allocation to define the risks from #3.
This asset allocation should be defined 3 ways
a) % stocks and % bonds. For example 80% stocks and 20% bonds
b) % domestic and % foreign investments. For example 75% domestic and 25% foreign.
c) a detailed breakdown of the allocation into asset classes.
for example
35% large cap domestic
25% small cap domestic
20% foreign large cap
15% domestic bonds
5% foreign bonds

or something like that
you will see this is 80% stocks and 20% bonds
you will see this is 75% domestic and 25% foreign

5) find funds which match your allocation

If you want to skip straight to 5, choose a target date fund and forget about it

401K advice needed