401k help (NRR)
spaceghost
605 Posts
i'm getting put on the company 401k plan.there are all sorts of different investment types listed that i can allocate my investment towards. the book lists them as capital preservation, balanced, growth & income, growth equity, index, international equity, and aggrssive equity. i was thinking since i'm relatively young i would invest pretty agressively at first. the company we have the 401k through is union central just in case that is at all helpful.can anybody give me some knowledge as to what to look for in these different accounts? are there certain sector allocations or holdings that i should look out for, both good and bad. any tips would be really helpful. much appreciated.
Comments
I can't help because I have always lost money in my retierment plans. When we had to sign up they had some "socialy concious" investment funds. You know how they show the top ten companies they invest in. They all had enron in the top ten. There were other questionable chocies in the SC funds, can't remember but maybe Bank Of America and Mobile. I passed on those but have lost money anyway.
Dan
thanks for the tip.. kinda what i was thinking of doing. didnt know if it mattered which one i picked.
i read your post in the vanguard squad thread as well. the one regarding the protests you were a part of.
its dope that you carry your politics through your whole life, or as far as you can take it. it is a personal constant self improvment goal to eliminate all the times my lifestyle is in contradiction with my politics and ideals.
we dont have one that is called "socially concious," but i will now be looking for who the top investments are.
respect man.
How many times a year can you make adjustments to where the money is going? Meaning, say you have half going to the 'aggressive' one and half going to the 'global' one, how many times can you switch it to maybe 25% going to one, 25% to another, you get the idea. Some funds limit the amount of times you can make changes, which is bullshit.
Is there a money market option (essentially the same thing as a savings account) where you can dump all of your assets for a period of time, before moving them back in?
Does your company contribute a percentage to it as well? Do they kick in with cash or stock?
Don't confuse a pension plan with a 401k match, very different things. Usually, you become the owner of the company match after 3 or 5 years of employment.
Something like 85% of mutual funds don't beat the market, so index may be the way to go.
Not true at all. If he puts in 100,000 in his own cash over time, directs his investment into the 'aggressive' portion, then the market either goes sideways or declines, his 100,000 in cash will be worth considerably less.
I know several old heads from my job who had their 401k accounts cut in half in the declines of a few years ago, forcing a lot of them to cancel their retirement plans.
Enron folks who put all their money into their Enron retirement accounts, directed completely into Enron stock, had their accounts wiped the fuck out. Some of those people were worth deep six figures, and are now slanging burgers.
Listen to Otis.
this is basically true for most people. it depends a lot on your particular income/tax situation. some basic 401k advice from MY perspective that should in no way be taken as gospel:
1) invest as much as your company will match. typically the rules are something like they will match 10% of your contributions (they add 10 cents to every dollar you put in) up to $3000 or 5% of your salary in matching funds, whichever is smaller. this is like free money. get it. if the cut off is $3000, put that in at least.
usually you'll want to dump the next $3000 you have (limits are higher next year maybe 4000 or 5000?) in a roth ira. the general idea is that the 401k is going to reduce your taxable income now, but you will get taxed on it when you are old and take it out. with the roth, it is after tax dollars, so you pay tax now, but dont when you take the money out. working on the basic assumption that either investment will earn money, this is a much better deal to get taxed on the front end unless for some reason you think you will be in a considerably lower tax breacket when you are old than you are now.
if you're still going to have dispoable income to invest after that, you may want to put more into your 401k if you can contribute enough to drop yourself down into a lower tax bracket. or if you are feeling pretty comfortable in your retirement investing, look for some other tax shelters for that income like buying property or starting a biz.
2) aggressive is good, but don't saddle yourself with too much risk. get a good mix of large companies and small companies. if you believe like i do that the us is headed for some long range economic problems because of our governmental and personal debt, make sure you have a reasonable base of international stocks, but be careful in this, it is not a big a hedge as you may thing because so many international economies are dependant on the us economy in many ways.
3) index funds have been doing a whole lot better than your average mutual fund lately. most mutual fund managers have ulterior motives for how they invest. also, big name funds (and plenty of sneaky small ones) also have extremely large management fees which can take a huge bite out of any potential return you may see. the index funds strip away lots of these problems and give you a return equal to whatever index you pick -- dow, s&p 5000, etc.
4) dont over react. lots of people try and chase the market and move their money around a lot. it is really hard to beat the market unless you are really damn lucky. you are usually better off getting a good asset mix and staying put for a long while. jumping around a lot diminishes the chances that you will earn a return comporable to the market as a whole.
5) go with your heart. there was a pretty well publicized trial in which elementary school kids picked stocks and got compared against professionals. guess who won? there are lots of explanations as to why the kids were better, but the moral is that the professionals dont always know what is best. do what you think is right and even if you prove to be wrong, at least you tried doing it your way. better to burn yourself than to have someone else do it for you. try and make socially conscious investment if that is what you believe in.
hope that helps. call me if you need some other advice. or bammer. dude will probably hook you up with a decent asset allocation mix if you ask.
this is important! the matching doesn;t mean dick if the money they contribute doesnt really become yours for 5 years but you are planning to stick around for 2.
the way i understand it right now my company just puts in a fixed percentage of the profits. they don???t match what i put in. im gonna confirm this tomorrow.
they call it profit sharing. to put this into perspective we are a small company about 20 of us. i???ve asked around at work a little, it seems that everyone is just taking what the company gives and putting the rest towards roth ira. ive been doing the roth ira thing for a few years now i plan to continue this year.
Well, I haven't started saving my own retirement, mainly as I have no income right now, so I'll say that up front.
But, from what I know as a business major/avid reader is that you should invest the max that your employer will match. That's the easiest way to get a great return (for you), even if the return for the fund isn't that great (overall).
Beyond that, it's on you. There's no reason to think that an employer (or designee) somehow knows how to invest better than you do. From what I've read, many employer funds actually aren't run very well at all.
Best idea is to talk to a financial advisor, and I mean a _real_ financial advisor. Not American Express or even Merrill Lynch - I went to a prospective employee program at AmEx and they don't give a fuck what you know or where you came from - they just people who will sell sell sell. Find an independent financial advisor who is trained in that field (i.e., degrees in finance). You could try a University and see who they have on staff and ask them for a recommendation - I had an excellent financial advisor as a professor - knowledgeable as hell on everything. People try to play off the need for quality council but if you get a true financial advisor, one who has chosen finance as his career, is gold. They can be to investing what a Johnnie Cochran was to the OJ trial. They not only can advise you on how invest but what investments will maximize your return, especially in regards to the tax ramifications.
Think about it. Good Lawyers, Accountants, Financial Advisors - all essential for a future big baller like yourself.
TRUTH
At the most basic level (if you're not balling like Rey) try to invest in a Roth IRA every year and put aside as much as you can ($3,000). Tax writeoff and very basic investment step.
Funny, my dad behaves exactly like the "poor dad" in that book and he was able to retire at 55.
some gems from it -
"don't think "I can't afford it", think "What can I do so I can afford it?""
The book's main point is
"Know the difference between an asset and a liability. Rich people buy assets."