I am thinking about starting my 401(k) profit sharing plan and I need a little information on what exactly to do. Here are the investment lineups for what I can choose....
American Century Stable Asset Fund
PIMCO Total Return Fund
Dodge & Cox Balanced Fund
American Century Income & Growth Fund - inv
American Century Ultra - inv
American Century International Growth Fund - inv
JP Morgan US Small Company Fund - Select
As you go down the list it starts conservative and gets more aggressive as you get to the end of the list. So as a starter I was wondering if you guys have ever heard of these companies or even invested in them? Since this is my first time setting up something like this I have no idea where to start. I can pick and choose from any company but the total percentages I enter must total 100%. Any ideas or suggestions on who to start with and how much to contribute per company?
Being young I would pick mostly aggressive and maybe 20-30% at mid-level risk.
Just keep an eye on your allocations as investments change and better ones might come up as time goes on. The market is doing much better so returns on 401K's should be better than years past.
I would also suggest looking at the those choices for historic performance in the last 12 months.
Most mutual funds lose money. In fact, most mutual funds only make fund managers any money. You see, they get 1.0-1.5% of whatever they raise and then may get treated even more right on the performance. Being that it's a competition for your dollars raised and not so much an indicator of future performance, it's all fucking marketing. I bet at least half of your funds won't beat an index fund or exchange traded index fund (QQQ's, Diamonds, Spiders).
At your age (I'm not too much older than you) and investment level, you can go two routes: guaranteed 7-8% and build a strong foundation or you can put your dick on the table and aim for Toby's 20-30%. Considering this market is already priced to perfection, I'd sit heavy on cash, bonds, gold, and dabble in a couple sector funds.
Your biggest gains will probably be seen in employer matching. It's free money and pre-tax. Max it out!
Don't swing for the fences just because you're young. That's how you get to be 35 and looking at brochures for Walmart Greeters.
Anyone who tells you 20-30% is easy is selling you crack. Maybe one year. Maybe two. Maybe ten. But over the course of 45 years of investing, you can retire niiiiiice on 7-10% with regular contributions. It's really not hard to be a millionaire with a little self-control and moderate income.
9/10 employee benefit plans or cafeteria mutual fund plans would be used as cornhole swipe by anyone with half a clue.
PS. Do some research on your own. You'll need to learn this at some point.
Smackie is correct with the tracking stocks generally being a better deal than the mutual funds. Empirically, mutual funds don't really outperform the market portfolio over the long run, but the plan administrators still take their cut. However, it looks like your plan administrator is offering you the menu of choices you originally presented, which are basically a collection of mutual funds (if you have the option of a self-directed account then you'll need to know a little more about the tracking stocks/individual stocks you might want). Read the little blurbs that go along with each offering and allocate your percentages of investment according to the risk you are willing to accept (the descriptions will often have past returns of the fund, along with the investment goals of each offering).
Additionally, I would agree with Smackie as to the 401(k) strategy, with one large caveat: if you are young(ish) you probably have a big purchase looming in the not-to-distant future, most likely your house. If this is the case, it might not be a bad idea to take some money and save it in a money market/conservative investment, rather than the 401(k). This way you don't take a penalty when you need the cash for a down payment on the house. Although you will lose the tax deduction on the amount you didn't put in the tax deferred account, you will get a deduction on your home mortgage interest if it is your principal place of residence, assuming you are able to save enough to get the home initially. That is why I would consider keeping some money in a place more accessable than the 401(k). But, you should also take advantage of any employer matching that may be available to you. For example, if your employer matches the first 2% you contribute, it would be worthwhile to contribute 2% of your salary at least, but then consider if you'd just like to put some in the bank for your big ticket purchase likely to occur in the next 5 years or so.
I'm not an investment professional, so my comments just reflect personal experience and should not be taken as anything more than my idiotic musings, but I'm sure if you have any more detailed questions, your plan administrator should be able to answer them.
I was talking about % of your allocation to go to mid-level risk investments and not rate of return.
Also...Screw the safe, small rate of return stuff...that time is over...the economy will rock in the next few years and if you don't get in now...you will loose big time. Actually if you have not changed your investment strategy to aggressive...you have already lost big time. My 401K has earned over 25% in the past 2 quarters and is doing nothing but getting stronger.
I have also made a killing in the past 6 months with the market and I have jumped back in with both feet. And it's going to do nothing but get better.
7 to 10% over a lifetime 401K sucks. You can get more than 7% with tax free government bonds. I have been in 401k's since my first job out of college and I know my average is well above 15% even with the past few years performance going into the negative.
Investing heavy in bonds, gold etc etc at a young age is not my choice and with the economy improving...bonds and all of those other "I am going to be middle class my whole life" type of investments values will drop as well. To each his own I guess.
Also your 7 to 10% is more like 4 to 8% after taxes when you withdraw it at retirement. That's fine but it’s not going to earn you right to be called the wealthiest man on easy street.
oh yes...my 401K administrator..ulike most...doesn't shave off a % on your rate of return. Shoping around pays off...so does running/being a part of a family business.
I agree with kid about the house stuff...keep some money liquid for such things as a down payment. You should never take money out of your 401K.
note: yes you can learn a lot from people on the internet. Just take it all in with the advice of people you know face to face and then make your choice.
Sgt. Well bro im invested in a drip fund, and it has paid off for me pretty well so far. Im still trying to learn the ropes of investment, and so far so good, i've been burned once, and i try to be as cautious as possible now, but not a total pussy. [img]/images/graemlins/bigsmile[/img]
Good luck with it, and just keep studying up and finding as much info as you can. Its the best advice this newbie can give right now.
I'd just stick to a low cost index fund. Most indicies perform just as well as any fund manager can do and if you calculate in the cost the indicies often come out ahead. I'd avoid any foreign fund (like a european investment fund or asian investment fund) due to the exceptionally weak dollar.
Also as both smackie and kid suggests, the value comes from investing over and over into your savings vehicle. Once you start, and find your comfortable savings level, you'll do good by just keeping investing into it.
p.s. never listen to anyone giving investment advice on the internet.
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