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401k - What fund(s) should I be investing in?

H

homestarmy

Diamond Member
At my new job I am signing up for my first 401k. They are 100% matching the first 4%. Is that good, or what is considered normal?

Anyhow, I have to decide what funds to put it in, and I have no idea. It is done through the Vanguard Group. I have a list in front of me of all of the funds. Should I type them out or...?

I don't mind going for something aggressive, but I don't really want to lose money either. I am 23 (24 this month) and a college student. My base pay is $29k and I pay $930 a month mortgage to put things into perspective.

Any suggestions?
 
VFINX. I do alot of work at an actuarial firm - a company that manages 401(k), Flexible Benefit Reimburstments, etc.

A company like this is who sent you the election form.
 
I don't have abbreviations on my form. What would the full name of this be, and could you tell me some basic information about it or give me a link (or tell me to google if that is best)?
 
Well, if you head over to Vanguard (www.vanguard.com), you can read all the info on them.

VFINX is the Vanguard Index Trust - 500 Index.

Some others, such as large cap, small cap, ... foreign markets, etc may yield more, but there is a much higher chance of losing money over the short-term.
 
In the thread about saving for retirment, an article was linked that said the average was matching 6% and that Gen Y only invests 5.6%. From my experience it is generally between 4%-6% depending who people work for.

Regarding Vanguard, they are a good choice because they are typically low cost.

You say you want to be aggressive, then say you don't want to risk losing money, can't have both. For some more secure options you can check out (less risk of losing money):

VFINX - its the same thing as the S&P 500
VEXMX - it is the extended market of stocks outside of the S&P 500
VTSMX - it is the total stock market, basically both the S&P 500 combined with the extended market
NAESX - Small-Cap Index

Some more aggressive funds:

VEIEX - Emerging Markets
VGENX - Energy Fund [not sure if they'll let you start investing in this, the current minimum is $25K to open but that might not apply to 401ks through work]


I cannot speak very well for most of those funds as I have only invested in VTSMX, tho it has done well for me.
 
Originally posted by: BlueFlamme
Originally posted by: Safeway
VFINX.
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Safeway are you becoming a DaveSimmons follower? 😀
Click to expand...

No, but he said he doesn't want to lose money 🙂

I am well invested in Vanguard, and it has been spectacular thus far.
 
i keep mine simple
new contributions go 80% into Vangaurd S&P 500 Index Fund and 20% into a Pacific/Asian Aggressive something fund, basically it is in China and other asian companies
 
i'm about to start a 401k plan here too. waiting for my hr person to get me the info. my company matches up to 5% or 6% i believe.

 
Yeah, I'm a Vanguard fan due to their low costs (and their founder, John Bogle, who is a very intelligent investor and created the first S&P 500 Index fund in the US)

You can check out all of their funds on this page, but remember, never invest based on past performance. Just because Precious Metals earned 48% last year does not tell you what it will do this year.
 
You are young, and (hopefully) your money should stay put until you are 59 at least. So I would say be aggressive as possible.
 
The key to relatively safe yet high return investing for most people is diversification. That means, you want a little of each main category. If one stock does poorly, you really don't lose much because you didn't invest much in it. If one stock soars, your money soars since you actually owned that stock. It is win-win for you in the long run.

You want some big stocks, and some small stocks. You want some stocks that are in a high growth state, and some stocks that are steady. As you can see, there are already 4 categories (2*2). Then you want that same thing domestically and internationally (now you are up to 8 categories (2*2*2). You also want a few bonds to balance out fluctuations. Toss in just a very small percentage of your money into a few specialty things (such as real estate or precious metals) and you are set.

No, you don't have to start out will all of those funds (often you can't since there may be minimum balance requirements). But that should be your ultimate goal.

Have 10%-20% bonds. Have roughly equal proportions of the large and small companies. Have roughly equal proportions of growth and value companies. (Note: if you wish, you can have a smaller percentage of small cap growth stocks since they historically have a highest risk and not the best returns, but don't avoid it completely). Have roughly double the US stocks that you have in foreign stocks. Have just a few percentage of your investment in specialty things. You should be able to accomplish this just by looking at the names (the names are actually useful at Vanguard unlike other companies).

And one final thing, don't do anything to your selections thoughout the year. Then once a year, sell a bit of the things that did great, and use that money to buy more of the things that did poorly (buy low, sell high). Balance everything once a year back to your goal percentages of each item.

If you do this, you'll beat 99% of investors in the long term.
 
Take a look at the performance history of all the funds they are offering. Spread your money out over the historically best performing funds.
 
Originally posted by: Queasy
Take a look at the performance history of all the funds they are offering. Spread your money out over the historically best performing funds.
Click to expand...
So you are guaranteeing he always buys high. The goal is to buy low, and sell high.

No fund can beat the market consistantly. That is, no fund can ever be good for many years in history and then keep going good into the future. The reverse is not true though. A fund can consistantly underperform. So you should avoid funds that ALWAYS do poorly by looking at historical returns.
 
Originally posted by: dullard
Originally posted by: Queasy
Take a look at the performance history of all the funds they are offering. Spread your money out over the historically best performing funds.
Click to expand...
So you are guaranteeing he always buys high. The goal is to buy low, and sell high.

No fund can beat the market consistantly. That is, no fund can ever be good for many years in history and then keep going good into the future. The reverse is not true though. A fund can consistantly underperform. So you should avoid funds that ALWAYS do poorly by looking at historical returns.
Click to expand...

That is what I mostly did with my funds and they are performing nicely thank you very much. There are a couple that weren't consistently performing high. The main thing though is to do like you said and avoid those that consistently underperform.
 
Originally posted by: Queasy
That is what I mostly did with my funds and they are performing nicely thank you very much.
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That strategy can and does work short term. Long term though, history has shown that it is not the way to get the best returns (because it can and does fail miserably short term as well).

 
Originally posted by: Safeway
Well, if you head over to Vanguard (www.vanguard.com), you can read all the info on them.

VFINX is the Vanguard Index Trust - 500 Index.

Some others, such as large cap, small cap, ... foreign markets, etc may yield more, but there is a much higher chance of losing money over the short-term.
Click to expand...

Ok, great, I see that one listed right here on my form.

I'm thinking maybe of putting ~80% into that and maybe ~20% into something more risky.

I don't have time to look into them now unfortunately, it's a little busy at work 🙁. Do you have a recommendation for the other ~20%? I will research later and I can change it, but I just need to have this form handed in to get the ball rolling for my acceptance (going from contractor to fulltime employee).

Thanks!!
 
The key is to find a good active fund that will outperform the index. In the event where such option doesn't exist, can't beat Vanguard for index funds.
 
What about 50% Vanguard 500 Index Fund, 25% Vanguard Explorer fund, and 25% Vanguard International Growth fund for now until I have a chance to do further research?
 
Originally posted by: homestarmy
What about 50% Vanguard 500 Index Fund, 25% Vanguard Explorer fund, and 25% Vanguard International Growth fund for now until I have a chance to do further research?
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That seems like a wise decision.
 
Great, thanks!

Oh, and I just wanted to point out that I am not allowed to post this type of question over at FW in their finance forum. WTF?!

What DO you post about in a Finance forum? FW really blows at times.

Viva la Anand!!
 
Originally posted by: homestarmy
What about 50% Vanguard 500 Index Fund, 25% Vanguard Explorer fund, and 25% Vanguard International Growth fund for now until I have a chance to do further research?
Click to expand...
Place those funds here (VFINX, VEXPX, and VWIGX if I looked them up correctly).

You have good balance between value and growth. But you are way top heavy with large cap stocks (add in a small cap fund). You also are lacking bonds (add in a bond fund). And your foreign stocks are a bit underweighted.
 
Thanks for the info! I will evaluate it a bit further when I get around to it. Probably in a few weeks after I am officially hired. I will keep this thread bookmarked and follow your advice when I do.

If you have nothing better to do, could you show an example of how you feel the optimal way to allocate them (in your opinion) would be? That would give me something to work off of.
 
Originally posted by: homestarmy
Thanks for the info! I will evaluate it a bit further when I get around to it. Probably in a few weeks after I am officially hired. I will keep this thread bookmarked and follow your advice when I do.

If you have nothing better to do, could you show an example of how you feel the optimal way to allocate them (in your opinion) would be? That would give me something to work off of.
Click to expand...
I don't like to make individual recommendations (since I haven't spent the time to look up the historical data, nor the yearly fees of all of them). But, I will show you a little tweak of your starting point that may likely do better in the long term.

[*]You are a little heavy in large US stocks. So lets drop that 50% value down a bit, lets say to maybe 35%.

[*]You always should have a little bit of bonds (when stocks do poorly, bonds usually do well, so they carry you through the bad years). Lets say add in 10% of bonds (a bit more aggressive than the standard 20% rule). There are tons of ideas on what to get on bonds and I don't keep up with them. So I just randomly choose one of the stable bond funds that has the a good yield at the moment: VBIIX (inter-term bond index). There may be better choices.

[*]You want more foreign and more small stocks. VINEX (International Explorer Fund) is one choice that fits the bill. Historically it has done well, but it has taken a little hit this year (meaning it isn't too high priced). Maybe add in 10% of that.

[*]Now you are at 105%, we have to cut something. Now a bit too much foreign, and still you are too much on the large side. So maybe cut your large stock foreign fund, VWIGX, to 20%.

The net result there is a much more balanced mix. It is still heavy on large cap stocks. But, if you really want a large percentage of VFINX, that is the best I could do. There is no guarantee that one mix will do better than another, but historically this type of mix should do better than what you started with.

Check out a book by Bernstein, this is his easiest to read. It'll give you the reasons and examples with real data showing why mixtures like this perform better. He even gives a detailed list of very good allocations (with ~20 funds). Clearly 20 funds is not realistic when you are just starting, but it gives good descriptions as to why that should be your final goal.
 
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