401K help

[yh125d]

So I find out about 30 minutes ago that in about 2 hours I'll have to decide what to put my money into (ING 401k), and I thought I had another 3 weeks to do research and decide, but now I know almost nothing except that my current IRA has been negative returns since day 1

Cliffs:
22
single
male
~15% annual income contributed
rolling over about $5k from my current IRA


I'm ignorant when it comes to investment stuff. I do know however that I want low risk and more reliable returns. I know that this goes against a lot of opinions that young people should put money in stocks for higher returns and blah blah but I don't want to play that game. I want reliability in my retirement account and will take my risks in other areas of my finances that I know better.

I hear bonds are good for this. Lower returns but low risk. I got a performance update sheet that has a "inflation protected bond - PIMCO VIT real return portfolio - administrative class" that has 5.5%ytd, 12.4% 1yr, 11.28 3 yr, 8.55 5 yr, and 7.34% 10yr average returns. That sounds really high for bonds, whereas a lot of the stock portfolios look like utter dogshit for everything under 3yr. Is it? Do those numbers sound in line at all? If so, that's perfect. My plan for retirement if everything goes fairly close to how I hope it will I only really need 5-6% return before retirement to be ok, anything else is gravy

Are bonds a good idea? If not, what are some other low risk alternatives? Normally I'd do some research to not be so clueless but I wasn't expecting this time crunch

 

[rcpratt]

If you're putting it in bonds when you're 22, you're doing it wrong. I'm not going to dig up the link, but take there is a cool figure that shows returns over any given 30-year period - they're pretty much always positive and larger than bonds returns. You have 40 years until you retire. Small fluctuations in the market are nothing to worry about at this point.

Stick it in a target-age fund or index fund, or a mix of those. Can't tell you much more without knowing your choices.

If bonds could guarantee you 7% returns, everybody would be doing that. That sounds a bit high.

 

[CPA]

If not bonds, then they should have a money market account. Can't get much lower risk in a 401K.

 

[jagec]

I hear bonds are good for this. Lower returns but low risk. I got a performance update sheet that has a "inflation protected bond - PIMCO VIT real return portfolio - administrative class" that has 5.5%ytd, 12.4% 1yr, 11.28 3 yr, 8.55 5 yr, and 7.34% 10yr average returns. That sounds really high for bonds, whereas a lot of the stock portfolios look like utter dogshit for everything under 3yr. Is it? Do those numbers sound in line at all? If so, that's perfect. My plan for retirement if everything goes fairly close to how I hope it will I only really need 5-6% return before retirement to be ok, anything else is gravy

You're not going to get 5-6% yearly return from any low-risk bonds in this market. They've been achieving those returns by holding some low-risk bonds, and some junk bonds. If the European crisis gets worse, those returns will probably drop, although the protection offered by the US bonds means they won't go negative.

 

[ichy]

Bonds are a terrible idea at 22. You need to be willing to take risk or inflation will eat you alive.

 

[vi edit]

Most plans have a target retirement account. For you, it's be something like 2052 (Christ that looks like a unfathomable number!).

They'll be index heavy up front and then slowly rebalance to income based stocks/bonds/treasury as it gets closer to the target date. For the unitiated investor, they are probably your better bet.

 

[Chess]

You are young, be aggressive.....

I am only 31 and I was aggressive I had made a ton of money, I then converted some into bonds, just so I had a positive return....

Be aggressive and go for the highest return possible...

 

[Rumpltzer]

Not bonds (in this market) at 22yo. More aggressive at 22yo.


Are you seeing a trend in this thread?

 

[yh125d]

Most plans have a target retirement account. For you, it's be something like 2052 (Christ that looks like a unfathomable number!).

They'll be index heavy up front and then slowly rebalance to income based stocks/bonds/treasury as it gets closer to the target date. For the unitiated investor, they are probably your better bet.

So this one instead?

 

[jagec]

So this one instead?

Sure. The stock market is down recently, but who cares about 1-month returns if you're not going to touch the money for decades?

That fund was only launched in 2010, the global economy has been chaotic the entire time since then, and it's STILL outperforming federal bonds.

 

[rcpratt]

I'd do 50% 2055 target fund, 25% large cap growth, 25% mid cap blend. Maybe throw some in one of the international funds too.

 

[vi edit]

So this one instead?

Yeh, something like that. Get the prospectus for it and see how it's diversified. Usually they spread it out over a couple dozen different fund types leaning heavy on the high risk stuff for the first 75% of the fund duration and then slowly moving it to income based vehicles.

Check the managment fees too. Those can be huge. A 1% or 2% fee over the course of 40 years is tens of thousands of dollars or more.

 

[JimKiler]

Why do you have 2 hours? I can update my 401K holdings at any point. It is not like healthcare where you get 2 weeks to decide and are locked into a decision for a full year.

I agree with the others that the target fund is great, I currently have 3 target funds, 2035, 2040 and 2045.

Also consider the index funds which mimic common indexes which means they should have lower expenses, but check the expense ratios to confirm.

 

[Genx87]

I have been putting my 401k into the bond market and seeing a 7% annualized return over the past 3 years. But I have diversified it into a 50/50 split between bonds and mid caps growth this year. I would also suggest deciding how much you can comfortably live off and plow as much as you can into the 401k to the cap. It reduces your tax liability as it is pretax income and will lower your gross wages.

 

[Rumpltzer]

Yeh, something like that. Get the prospectus for it and see how it's diversified. Usually they spread it out over a couple dozen different fund types leaning heavy on the high risk stuff for the first 75% of the fund duration and then slowly moving it to income based vehicles.

Check the managment fees too. Those can be huge. A 1% or 2% fee over the course of 40 years is tens of thousands of dollars or more.

I notice that the management fees for the target funds (at my workplace) are actually very high compared to our other offerings. This note that you make about the fees is important.

 

[DaveSimmons]

That Target fund is probably the best choice out of the funds in that list. You get the total stock market plus bond funds, with the mix adjusted to give you more and more bonds as you get closer to retirement.

The important thing is to remember that you are investing this over a 40 year span -- don't look at the value every week or even every month.

If you get a quarterly statement and see you've lost money, that's just a short-term paper loss. It also means that you were buying new fund shares at a discount while the market was down. The mutual fund shares that I bought in 2009 after the housing collapse are now up over 70% in just over 3 years.

Buy, hold, stay calm and look at market dips as you buying low at a discount. Accept the short-term risk, you need it to get much much better long-term returns than you'd have with bonds.

 

[jagec]

Check the managment fees too. Those can be huge. A 1% or 2% fee over the course of 40 years is tens of thousands of dollars or more.

"Target retirement" funds at Vanguard have an expense ratio of 0.19%

 

[rcpratt]

My T Rowe Price 2050 target fund has an expense ratio of 0.47%. Not bad, but I wish I could get Vanguard.

 

[vi edit]

"Target retirement" funds at Vanguard have an expense ratio of 0.19%

Unfortunately most of us don't have options for Vanguard for our company sponsored 401ks.

 

[thegimp03]

I'd do part in the target retirement and part in small/mid cap. Small/mid cap is more volatile, but usually has pretty good growth prospects, and at 22 you don't need to worry about volatility.

 

[DaveSimmons]

I'd do part in the target retirement and part in small/mid cap. Small/mid cap is more volatile, but usually has pretty good growth prospects, and at 22 you don't need to worry about volatility.

The target fund already has small and mid-cap stocks though, so the only reason to do that is if you don't think it has the right weights for them. (I haven't checked the weights for ING's so have no opinion either way.)

It might seem like buying 1 fund isn't diversified enough, but target funds are designed to be fully diversified.

Vanguard's gives you the total US stock market, foreign stocks, and bonds.

 

[HardcoreRobot]

you should leave your IRA in a self managed fund.

ING should allow you to access and reallocate your investments at any time. at your age, id do no more than 10% bonds. personally i did 0.

can also just do a target date fund, they will control the asset class allocation for you if thats a concern.

 

[yh125d]

Alright, I'll just do the 2055 index thing then. Surely online strangers wouldn't do me wrong


2011 was the first year we had any retirement and I just did 3% to get the 3% emplohyer match. This January I wised up a bit and upped it to 7% + 3%. Now my company is being bought out (hence the change to ING) and they give 4% so I'm upping my part to 11% to get 15, or I might even do 20%. If I hit the cap during the year, will my employer automatically stop contributions?

 

[mshan]

I would obviously contribute to the 401k up to the company match, but given how poor the options ING offers you are (seem to have high expense ratios, don't know if they will try and charge you a sales load, too), but dollar cost averaging into Vanguard Index Total Stock Market index fund https://personal.vanguard.com/us/funds/snapshot?FundId=0085&FundIntExt=INT), which has to be held directly at Vanguard if it is a taxable account (they will automatically convert you to even lower expense ratio Admiral Shares without tax consequences when balances reach minimums), and because of the very high tax efficiency of this fund, it is some sense somewhat tax deferred compounding and you don't have to automatically start taking distributions as you approach retirement. Depending upon choices available in current IRA, I would be inclined not to roll-over into that ING 401k.

T. Rowe Price Capital Appreciation (http://quote.morningstar.com/fund/f.aspx?Country=USA&Symbol=PRWCX and http://www3.troweprice.com/fb2/fbkweb/objective.do?ticker=PRWCX) might fit the bill for the lower risk and more reliable returns (by this, less volatility in terms of how much price of the fund swings up and down vs overall market), but because it is a balanced fund, the total pot of money you have many years down the road will be less than if you went with quality 100% stock mutual fund and held for decades, not years).


Tyranny of Compound Interest: http://books.google.com/books?id=ac...nepage&q=tyranny of compound interest&f=false


The Successful Investor: http://selectedfunds.com/downloads/SFSucclInv1211.pdf

 

[thegimp03]

Alright, I'll just do the 2055 index thing then. Surely online strangers wouldn't do me wrong


2011 was the first year we had any retirement and I just did 3% to get the 3% emplohyer match. This January I wised up a bit and upped it to 7% + 3%. Now my company is being bought out (hence the change to ING) and they give 4% so I'm upping my part to 11% to get 15, or I might even do 20%. If I hit the cap during the year, will my employer automatically stop contributions?

Both of the 401K plans I've used have required self monitoring.