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401k investment strategy

A

AStar617

Diamond Member
The recent 410k YTD return thread got me thinking, as I stared at my paltry 6% return from 100% contribution to FUSEX (S&P500 index fund): I should be much more aggressive, since at my young age (24yo) any loss of value actually equates to a lower cost basis for the shares and more return after the value swings back up.

Here's what I've come up with:

1) Increase pre-tax contribution from 10% to 12% since my salary just got a little kick in the pants. Unfortunately, company match is not spectacular, 50% match of my first 6% I think.

2) Switch from 100% FUSEX to 10% FUSEX / 90% Fidelity Contrafund, which is ~18% over past 3yrs., leaving any FUSEX investment (everything up to this point) as-is.

3) At the end of each year, evaluate the earnings.

4) If my YTD is, say, 13% or higher, move entire Contrafund balance to FUSEX, and go back to 2). If not, leave Contrafund balance as-is, wait a year, and go back to 3).


This seems like it would allow for me to squeeze an extra few points out of my investment, with the relative security of FUSEX for capital preservation (yes true cap preservation is bond-based but this is an attempt to be more aggressive since I have 40yrs to play with). All the while still contributing minimally to FUSEX so that if its value is depressed at any time I can take advantage of its lower cost basis too and I wouldn't have really just "lost money" with nothing to show for it.

Thoughts?
 
Since I don't know what funds you have, I might suggest looking at foreign funds as they seemed to outperform the US market this year.

Fidelity Diversified International Fund seems to have good returns (nothing is ever guaranteed though).

Typically, the S&P 500 has beaten 70+ % of managed funds on a year over year basis but has lagged those funds this year.

Mid-cap funds also outperformed the S&P this year (or at least mine beat the heck out of it).

Good luck...there is no magical forumula other than diversification! 🙂
 
At your age of 24, we're talking about around a 40 year investment horizon, that's a long time. Personally I would suggest having a nice amount in an S&P500 index fund, it's practically unbeatable over 40 years.(according to history). Throw in the high risk stuff right now such as foreign stock funds and sector funds. You did mention Fidelity Contra which is great, good performance and smart managers.
 
you invest in a long-term fund, and are running away because youre not getting a good 1-year return... thats your problem right there. its pretty simplistic
 
Thanks guys. Our offering for funds is not that hot. I actually had to petition HR to include an S&P500 index fund because we didn't offer one at the time I was turning 21 and about to become eligible for the program :roll: All my research showed that S&P 500 indexes are a surefire bet, historically speaking, as everman confirmed...

should I then just chalk this past few years' worth of performance as a very lucky dip in my cost basis and call it a day, sticking to 100% FUSEX? Will my 60yr old self thank current me later? 🙂
 
That reminds me, I need to write my reps and lobby them to change the age of 401k participation from 21 to 18 (or lower). They want to move SS to private accounts and preach personal responsibility but won't let someone, who can vote and fight in wars, participate in a retirement savings account of their own money? WTF? :roll:
 
2) Switch from 100% FUSEX to 10% FUSEX / 90% Fidelity Contrafund, which is ~18% over past 3yrs., leaving any FUSEX investment (everything up to this point) as-is.
Click to expand...
IMHO that's cutting back FUSEX too far. Like Engineer says an S&P fund will outperform most other funds over time. You want to keep adding shares steadily for dollar cost averaging, not wait until after a good year.

Something like 50% Contrafund, 30% (some worldwide), 20% FUSEX would be a good mix for now, leaving your existing shares alone.
 
Screw funds. Just buy some good quality individual stocks.

Costco (COST). Outback Steakhouse (OSI).

Buffet and FMR own lot of shares of Outback.

For the record I own shares in both.
 
Originally posted by: Naustica
Screw funds. Just buy some good quality individual stocks.

Costco (COST). Outback Steakhouse (OSI).

Buffet and FMR own lot of shares of Outback.

For the record I own shares in both.
Click to expand...

You usually don't get the choice for individual stocks in a 401k plan. Sorry! 🙁
 
Originally posted by: Engineer
Originally posted by: Naustica
Screw funds. Just buy some good quality individual stocks.

Costco (COST). Outback Steakhouse (OSI).

Buffet and FMR own lot of shares of Outback.

For the record I own shares in both.
Click to expand...

You usually don't get the choice for individual stocks in a 401k plan. Sorry! 🙁
Click to expand...

Oops! Forgot that. Been out of Corporate America too long.
 
In addition to the S&P 500 index, I'd also have some international exposure. I also invest in an international stock index for my Roth IRA. Is there an international fund available?

You should have about 30% of your money in international funds.
 
Does your employer match any portion of your contributions?

I suggest that you only contribute up to the amount that your employer matches.

After my employer forced me to switch my 401K from one plan to another without asking me my input on what to do with my money, that is all that goes in their lame 401K.

I would put the rest in a Roth and Standard IRAs so you have control of more of your own money.

:beer:
 
Originally posted by: flyfish
Does your employer match any portion of your contributions?

I suggest that you only contribute up to the amount that your employer matches.
After my employer forced me to switch my 401K from one plan to another without asking me my input on what to do with my money, that is all that goes in their lame 401K.

I would put the rest in a Roth and Standard IRAs so you have control of more of your own money.

:beer:
Click to expand...

I don't think you can do a standard IRA if you place money into a 401k plan (at least not if the amount is more) IIRC. Tax deduction might be better with the 401k than the Roth, YMMV as it depends on what tax bracket you're in now and what bracket you expect to be in when you retire (tough one, isn't it? :shocked: )
 
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