401k Allocations...

[edro]

So I have had a 401k for the last 3 years or so, and it is starting to accumulate. The problem I have is... for the last 5 quarters, I am averaging 0.3-0.5% Return rate. Is that just because the economy is down? If I do a custom statement that shows the last 3 years, it says my total Return Rate is 2.3%.

Why am I doing the 401k at all? Why not throw it all into an INGDirect acct and get 2.2% all the time? Are my allocations crap? I don't really know where to put my money, so recently (the last 6 months or so), I have had all my allocations in US Bonds and Retirement MKT (lost risk).

What do you guys think? How should I better save my money?

 

[GasX]

Tax adjusted, you gains are much much much higher. However, you might want to reevaluate what your fund choices are...

 

[huypham]

Does your employer match a certain percentage? That's the first reason why 401ks are great, it's free money if your employer matches! Second, it's untaxed when you put it in. So if you were to put your money into an ING accout, you would have less money cause that contribution is taxed.

 

[edro]

Originally posted by: huypham
Does your employer match a certain percentage? That's the first reason why 401ks are great, it's free money if your employer matches! Second, it's untaxed when you put it in. So if you were to put your money into an ING accout, you would have less money cause that contribution is taxed.

Doh... forgot about that small fact. 🙂 Yeah, they match 50% up to 6%. Aight, aight... I feel better now.

I still wish I knew a little more about the different funds... (the prospectuses are far too confusing)

 

[tontod]

You should keep that money in 401K. When the market improves, your return should be higher. Even if interest rates keep going up, ING's interest rate isnt going to go much higher, maybe upto 3-3.5% at most. Also, keeping it in 401K prevents you from getting to it for an impulse buy. Its a nice nest egg for retirement, and you can take a loan from 401K for your home mortgage.

 

[edro]

Originally posted by: Mwilding
Tax adjusted, you gains are much much much higher.

What do you mean?

 

[Ynog]

Originally posted by: huypham
Does your employer match a certain percentage? That's the first reason why 401ks are great, it's free money if your employer matches! Second, it's untaxed when you put it in. So if you were to put your money into an ING accout, you would have less money cause that contribution is taxed.

Two huge points. You should atleast put as much money into your 401k as your company matches. After that if you want to redirect some of your money into an ING account thats your choice. But like it has been said before. Free money is huge.

 

[GasX]

Originally posted by: edro13

Originally posted by: huypham
Does your employer match a certain percentage? That's the first reason why 401ks are great, it's free money if your employer matches! Second, it's untaxed when you put it in. So if you were to put your money into an ING accout, you would have less money cause that contribution is taxed.

Doh... forgot about that small fact. 🙂 Yeah, they match 50% up to 6%. Aight, aight... I feel better now.

I still wish I knew a little more about the different funds... (the prospectuses are far too confusing)

How old are you?

If you are under 30, pick at most two funds (until your assets start getting close to or beyond 6 digits)

An agreesive growth fund and a growth and income fund will provide you with a decntly diverse portfolio to work with...

 

[GasX]

Originally posted by: edro13

Originally posted by: Mwilding
Tax adjusted, you gains are much much much higher.

What do you mean?

Let's say 6% of your income is $6000 (easy math).

If you invest it in a 401k, you get to start with $6000
If you don't, you pay taxes on it and thus start with ~$4200 (depending on your tax rate)

If your returns are close to the same, the 401K with blow away your taxable investment...

 

[edro]

Originally posted by: Mwilding

Originally posted by: edro13

Originally posted by: Mwilding
Tax adjusted, you gains are much much much higher.

What do you mean?

Let's say 6% of your income is $6000 (easy math).
If you invest it in a 401k, you get to start with $6000
If you don't, you pay taxes on it and thus start with ~$4200 (depending on your tax rate)
If your returns are close to the same, the 401K with blow away your taxable investment...

Ah... ok, thanks!

Oh, and I am 22. (If that makes a difference.)

 

[GasX]

Originally posted by: edro13

Originally posted by: Mwilding

Originally posted by: edro13

Originally posted by: Mwilding
Tax adjusted, you gains are much much much higher.

What do you mean?

Let's say 6% of your income is $6000 (easy math).
If you invest it in a 401k, you get to start with $6000
If you don't, you pay taxes on it and thus start with ~$4200 (depending on your tax rate)
If your returns are close to the same, the 401K with blow away your taxable investment...

Ah... ok, thanks!

Oh, and I am 22. (If that makes a difference.)

The younger you are, the more agressive your investment choices should be. If you don't plan to retire for 40 years, you can weather the storms that a volatile portfolio inevitably brings and enjoy the benefits of the long term growth that the aggresive approach gives...

 

[GasX]

Originally posted by: Mwilding
Let's say 6% of your income is $6000 (easy math).

If you invest it in a 401k, you get to start with $6000
If you don't, you pay taxes on it and thus start with ~$4200 (depending on your tax rate)

If your returns are close to the same, the 401K with blow away your taxable investment...

Adding in the extra 3% match would let you start with $9000 in your 401K. Add in the fact that you pay ZERO TAX on the gains and you can easily realize that 401k's are the greatest way to ensure your financial security when you retire (outside of making a huge wad of cash in the import/export business...😉)

 

[geecee]

Originally posted by: edro13
So I have had a 401k for the last 3 years or so, and it is starting to accumulate. The problem I have is... for the last 5 quarters, I am averaging 0.3-0.5% Return rate. Is that just because the economy is down? If I do a custom statement that shows the last 3 years, it says my total Return Rate is 2.3%.

Why am I doing the 401k at all? Why not throw it all into an INGDirect acct and get 2.2% all the time? Are my allocations crap? I don't really know where to put my money, so recently (the last 6 months or so), I have had all my allocations in US Bonds and Retirement MKT (lost risk).

What do you guys think? How should I better save my money?

Seeing your post about being 22, no way you should have your money in bonds and conservative investments. Find the more aggressive equity offerings in your 401K plan and put the money there. As you're nearing retirement age, gradually begin to shift your investments over to more conservative ones. Stats show that although there can be short-term volatility in equities, the long term growth percentage is quite a bit higher.

 

[KLin]

Originally posted by: Mwilding

Originally posted by: edro13

Originally posted by: Mwilding
Tax adjusted, you gains are much much much higher.

What do you mean?

Let's say 6% of your income is $6000 (easy math).

If you invest it in a 401k, you get to start with $6000
If you don't, you pay taxes on it and thus start with ~$4200 (depending on your tax rate)

If your returns are close to the same, the 401K with blow away your taxable investment...

I wish 6% of my income was 6000 dollars 🙁.

 

[FoBoT]

you it into something that is low risk/low growth and you cannot expect high returns

a bond/retirement fund isn't the place to put your money when you are young.

IIRK you are in your early 20's?

you should switch your new contributions to a fund that puts 100% into the stock market, either an index fund if you want less risk or a sector fund if you want more risk/reward potential

keep up the 401(K) contributions, just shift them into a more growth orientated area

 

[ttown]

Originally posted by: Mwilding

Originally posted by: Mwilding
Let's say 6% of your income is $6000 (easy math).

If you invest it in a 401k, you get to start with $6000
If you don't, you pay taxes on it and thus start with ~$4200 (depending on your tax rate)

If your returns are close to the same, the 401K with blow away your taxable investment...

Adding in the extra 3% match would let you start with $9000 in your 401K. Add in the fact that you pay ZERO TAX on the gains and you can easily realize that 401k's are the greatest way to ensure your financial security when you retire (outside of making a huge wad of cash in the import/export business...😉)

The benefit isn't quite that good. 401K's are tax deferred -- not tax-free.
(but still, at age 22... you got a whole lotta deferring going for you)

 

[pyonir]

my company doesn't match until i've been here for a year. So i'm not going to enroll until that year comes around.

 

[ttown]

Originally posted by: FoBoT
you it into something that is low risk/low growth and you cannot expect high returns

a bond/retirement fund isn't the place to put your money when you are young.

IIRK you are in your early 20's?

you should switch your new contributions to a fund that puts 100% into the stock market, either an index fund if you want less risk or a sector fund if you want more risk/reward potential

keep up the 401(K) contributions, just shift them into a more growth orientated area

I read an article recently from "market experts" drawing the conclusion that if John Kerry wins the presidency -- it will help bonds. A G-Dubya win will help stocks. (in the short-term)
But, market-experts have been wrong before......
But generally, you're recommendation is the generally accepted philosophy...
young(stocks) ---> middle-aged(stocks/bonds) ----> older(bonds/fixed income)

 

[edro]

Here is a list of my available funds...(list of my actual are at the bottom)

Company Stock
EMERSON ELEC STK

Large Cap
FIDELITY BLUE CHIP
FIDELITY EQ INC II
FIDELITY GROWTH CO
FIDELITY MAGELLAN
SPARTAN US EQ INDEX MID-CAP
H & W MID CAP VAL I

Small Cap
MSI SM CO GROWTH B

Iinternational
FIDELITY DIVERS INTL

Blended Fund Investments
FID FREEDOM 2000
FID FREEDOM 2010
FID FREEDOM 2020
FID FREEDOM 2030
FID FREEDOM 2040
FID FREEDOM INCOME
FIDELITY PURITAN

Bond Investments
FIDELITY SH TERM BD
FIDELITY US BD INDEX

Short Term Investments
FIDELITY RETIRE MMKT


Right now, I have:
40% FIDELITY RETIRE MMKT
30% FIDELITY SH TERM BD
30% FIDELITY US BD INDEX

What do you recommend?

 

[amoeba]

I am a bit on safe side so I usually go mostly large cap.

Try typing these funds in at cnnmoney.com

and check the history and whether it beats the index it mirrors.

Also look at the morningstar rating. Some people don't like morningstar but I find it to be ok.

 

[GasX]

Originally posted by: edro13
Here is a list of my available funds...(list of my actual are at the bottom)

[...]

What do you recommend?

Reallocate ALL OF IT to funds with more growth potential!!!

I would go with FIDELITY BLUE CHIP and MSI SM CO GROWTH B 60/40 respectively

(note - I can't find any info on the second fund so I am recommending solely on being the only small cap option)

 

[welst10]

I just checked my 401k. From 10/4/02 to today (2 yr period), my return is 16% annual (32% over 2 yrs). I made $3220 in investment gain (not including company contribution).

Here is my CURRENT allocation:
Large cap 35%
Small cap 25%
Bonds 10%
CDs 12%
International 10%
Emerging market 8%

I check the return of each fund and adjust the allocation every 3 months or so.

 

[edro]

24%! HOLY CRAP!

 

[CaffeineAndStuff]

If you don't want to think about it just go with the freedom 2040

 

[amoeba]

The key is buy bond based funds if you predict stock market to go down, buy stock based funds if you expect stock market to go up.