401k's and investing for complete idiots

[PixlPutterman]

I have been with my company for coming on 3 years, and will be fully invested in my 401k with them. I have JUST started to poke around in my 401k and opened a BrokerageLink account with Fidelity (also who my employer uses for the 401k).

 

I am not at all looking to become a day or even a week trader. How ever I do want to understand what is going on with my money and be able to look at it a time or two a month and know if I am headed in the right direction.

 

I was planing on putting half of my 401k into an S&P 500 fund and the other half in ONEq, how ever that is just based off of advice from a friend who is doing well with his 401k.

 

Can anyone recommend either a path/plan or maybe some foundational reading?

 

Again just want to be able to just understand at a macro level what is happening with my retirement every few weeks or once a month.

 

Thanks

[Argonne69]

My philosophy is to stay aggressive. You don't mention how many years you have until retirement, but with life expectancy pushing 80 years, one has got to have a sizeable nest egg to retire. I generally avoid single stocks, and prefer low cost mutual funds and ETF's. No harm in going with an index fund. Avoid chasing the latest high flying fund, as they tend to not be able to repeat their success.

[baddomes]

Everyone's doing well in their 401k's right now. Everyone's a genius, just like we all were in 2007.

 

In my opinion, 401k is not worth using to buy/sell monthly. Put money in one of those Target Retirement Date funds (T. Rowe does them) and let them re-balance for you.

 

If you want to gamble, open a second brokerage account and mess around in there.

 

Or don't.

[PixlPutterman]

Im 31 for what its worth

 

I dont plan on buying and selling on a monthly basis, just checking it on a monthly basis and knowing what is going on. I want to look at mid/long term funds, just wanting to do better than my current return rate.

[Argonne69]

I check mine quarterly. I think if you peek too often you'll get the urge to make snap adjustments that might have long-term consequences.

 

Are you primarily invested in growth funds?

[bscinstnct]

Take it all out, go to Vegas, and put it *all* on black!

 

Ha! Sounds like you are right on target, actually. Those index funds seem right for your age. SnP gives you coverage accross all verticals and dividend reinvestment and the nasdaq, while higher beta, seems fine for your age too.

 

Key is to be consistent and not try to time entry and exit. Hopefully, you can nail an 7%+ real return over the long haul.

 

Caveat,

 

http://www.simplestockinvesting.com/SP500-historical-real-total-returns.htm

 

 

 

 

 

[onlyomar]

Find a financial advisor and work with him to set and work toward your long term goals. That is the best thing if you want to k is what is going on. Can't emphasize this enough. Don't try to do it alone.

[Gamble Gamble]

i treat my 401k like i do my golf game:

 

hyper aggressive and throw as much money into it as possible.

[moegolfer11]

I have a 401k that I throw money into and don't touch. A savings account that acts as my rainy day fund. And a brokerage account that I day/swing trade with. I leave the 401k investing to my adviser. While I continue to act like a jackass with my brokerage account.

 

Vanguard funds, other index funds, and ETFs seem to be the way of the future for long term investment.

[Argonne69]

OP, I assume you max out your 401K contribution, or at least withhold the amount needed to get the full employer match? Otherwise, it's leaving money on the table.

 

The average person simply doesn't understand the power of compounding interest. A 30 year old making 50k a year who increases their withholding by just 1% ($500 a year) will have approximately $50,000 more when they turn 65.

[PixlPutterman]

I did find out that my employer limits my BrokerageLink account to ONLY mutual fund choices.

 

Makes things simpler I guess but leaves out a few options I was interested in, I can self fund a separate account at some point to invest in those.

[bscinstnct]

I did find out that my employer limits my BrokerageLink account to ONLY mutual fund choices.

 

Makes things simpler I guess but leaves out a few options I was interested in, I can self fund a separate account at some point to invest in those.

 

Lehman bros was around for like 90 years.

 

Went under from trading.

 

What chance do you have?

[T-MAC]

As a former CFP (who was bored out of his mind in the 1980's and went in a different direction) I can't stress enough how important diversity is in your portfolio. You're young enough to take some chances and be more aggressive, but you still want a diversified approach. I also encourage people to look at ROTH IRA's, especially if you want to open up a second account alongside your employer 401K. Who knows what the tax rates are going to be by the time you retire, so ROTH's are very attractive - especially for younger investors.

 

SAVE, SAVE, SAVE brother.

Always pay yourself first. ;)

[garyt]

Im 31 for what its worth

 

I dont plan on buying and selling on a monthly basis, just checking it on a monthly basis and knowing what is going on. I want to look at mid/long term funds, just wanting to do better than my current return rate.

 

If you're only 31 get some money in small cap stocks/funds. Over the long haul they outperform and you have time to wait out any ups and downs. If you're just interested in doing funds, get one that is small cap, mid cap, and an SP 500 index fund. At your age you can be aggressive. I'd put (and did at your age) at least 90% in stocks,screw the bonds.

[scomac2002]

Everything you need to know is contained in the Bogleheads Financial Wiki. Read everything, then reread it again to make sure you understand what is being said. You can join the forums there and get all your questions answered by a group of very knowledgeable private investors. There is a companion group for Canadian investors in the Finiki that is sponsored by the Financial Wisdom Forum.

 

These are non profit organizations whose goal is the enlightenment and empowerment of individuals in personal financial matters. These groups are inspired by the work of Jack Bogle a pioneer in the field of low cost index investing.

[Argonne69]

Basic question, do you believe your life expectancy should play a major factor in your stock/bond allocation strategy? The basic strategy is that the percentage of bonds should be your age. If you are 65 years old, then 65% of your portfolio would be in bonds.

 

However, life expectancy is generally rising, although it did take a minor dip recently. If one expects to live to 90 or 95, can one really afford to have such a high percentage of their portfolio in a low yield asset, given that their savings have to last 25 to 30 years?

[scomac2002]

Basic question, do you believe your life expectancy should play a major factor in your stock/bond allocation strategy? The basic strategy is that the percentage of bonds should be your age. If you are 65 years old, then 65% of your portfolio would be in bonds.

 

However, life expectancy is generally rising, although it did take a minor dip recently. If one expects to live to 90 or 95, can one really afford to have such a high percentage of their portfolio in a low yield asset, given that their savings have to last 25 to 30 years?

 

In a word, yes. For planning purposes the new normal is to use 95 as the end point when assessing portfolio survivability via monte carlo simulation. In the current investment climate with reduced return expectations it is very difficult to get a portfolio to sustain through thirty years of withdrawals if the bond component equals your age. The size of the portfolio would have to be very big and/or the withdrawal rate quite low.

[Argonne69]

Basic question, do you believe your life expectancy should play a major factor in your stock/bond allocation strategy? The basic strategy is that the percentage of bonds should be your age. If you are 65 years old, then 65% of your portfolio would be in bonds.

 

However, life expectancy is generally rising, although it did take a minor dip recently. If one expects to live to 90 or 95, can one really afford to have such a high percentage of their portfolio in a low yield asset, given that their savings have to last 25 to 30 years?

 

In a word, yes. For planning purposes the new normal is to use 95 as the end point when assessing portfolio survivability via monte carlo simulation. In the current investment climate with reduced return expectations it is very difficult to get a portfolio to sustain through thirty years of withdrawals if the bond component equals your age. The size of the portfolio would have to be very big and/or the withdrawal rate quite low.

 

Is there a new rule of thumb, e.g. age - 10? 20?

 

'Looking forward to a life of Kraft Mac and Cheese and bologna sandwiches. I have to skimp in some areas to keep my golf equipment fix satisfied.

[somaplr]

Basic question, do you believe your life expectancy should play a major factor in your stock/bond allocation strategy? The basic strategy is that the percentage of bonds should be your age. If you are 65 years old, then 65% of your portfolio would be in bonds.

 

However, life expectancy is generally rising, although it did take a minor dip recently. If one expects to live to 90 or 95, can one really afford to have such a high percentage of their portfolio in a low yield asset, given that their savings have to last 25 to 30 years?

 

All depends what your retirement lifestyle is and what your goals are - that drives asset allocation more than age does.

 

To the OP, buy equity index funds and wake up in 30 years.

[glk]

Basic question, do you believe your life expectancy should play a major factor in your stock/bond allocation strategy? The basic strategy is that the percentage of bonds should be your age. If you are 65 years old, then 65% of your portfolio would be in bonds.

 

However, life expectancy is generally rising, although it did take a minor dip recently. If one expects to live to 90 or 95, can one really afford to have such a high percentage of their portfolio in a low yield asset, given that their savings have to last 25 to 30 years?

I'm 66 and at 60/40 which is down from my younger days. Don't plan on going any lower but this is most always a topic with our guy at Fidelity.

Most of our stuff is tax managed portfolios except our one hold over that I never let Fidelity get their hands on and sell and diversify though they've tried in the past but

have given up - bought Microsoft way, way back in the day - only single stock I own and pretty much the only single stock I've ever owned. Wife and I have had the

good fortune to retire (me at 51 and she at 57) and not have to even dip into our investments. Though in a few years, I'll have to start puling from the old IRAs.

 

On the other hand, we have no debt and own our homes outright - beside managing investments I'd advice folks to get debt free as fast as possible. We gave our 3 sons the gift of a debt free college education (there went my wife's porches) - and remind them at opportune moments. Pay cash for everything (though we get the credit card perks) and have a good chunk in cash just wasting away at .0001% LOL.

[scomac2002]

Basic question, do you believe your life expectancy should play a major factor in your stock/bond allocation strategy? The basic strategy is that the percentage of bonds should be your age. If you are 65 years old, then 65% of your portfolio would be in bonds.

 

However, life expectancy is generally rising, although it did take a minor dip recently. If one expects to live to 90 or 95, can one really afford to have such a high percentage of their portfolio in a low yield asset, given that their savings have to last 25 to 30 years?

 

In a word, yes. For planning purposes the new normal is to use 95 as the end point when assessing portfolio survivability via monte carlo simulation. In the current investment climate with reduced return expectations it is very difficult to get a portfolio to sustain through thirty years of withdrawals if the bond component equals your age. The size of the portfolio would have to be very big and/or the withdrawal rate quite low.

 

Is there a new rule of thumb, e.g. age - 10? 20?

 

'Looking forward to a life of Kraft Mac and Cheese and bologna sandwiches. I have to skimp in some areas to keep my golf equipment fix satisfied.

 

I don't like rules of thumb. It really comes down to what you need to grow your investment at to reach your goals and how much volatility you can handle. It becomes a balancing act of contribution rate, required rate of return and risk tolerance.

 

This is a risk tolerance questionnaire that I have used in the past with good success. It is designed for the Canadian market, but the general split between equities and fixed income would still apply.

[scomac2002]

Basic question, do you believe your life expectancy should play a major factor in your stock/bond allocation strategy? The basic strategy is that the percentage of bonds should be your age. If you are 65 years old, then 65% of your portfolio would be in bonds.

 

However, life expectancy is generally rising, although it did take a minor dip recently. If one expects to live to 90 or 95, can one really afford to have such a high percentage of their portfolio in a low yield asset, given that their savings have to last 25 to 30 years?

 

All depends what your retirement lifestyle is and what your goals are - that drives asset allocation more than age does.

 

To the OP, buy equity index funds and wake up in 30 years.

 

That's the single best piece of advice for 99% of the population!

[glk]

Basic question, do you believe your life expectancy should play a major factor in your stock/bond allocation strategy? The basic strategy is that the percentage of bonds should be your age. If you are 65 years old, then 65% of your portfolio would be in bonds.

 

However, life expectancy is generally rising, although it did take a minor dip recently. If one expects to live to 90 or 95, can one really afford to have such a high percentage of their portfolio in a low yield asset, given that their savings have to last 25 to 30 years?

 

All depends what your retirement lifestyle is and what your goals are - that drives asset allocation more than age does.

 

To the OP, buy equity index funds and wake up in 30 years.

 

That's the single best piece of advice for 99% of the population!

2nd that. Chasing hot stocks is a tough game to play. We're more diversified today cause we don't really want to see a large drop in our money - we only went down 25%

in the big turn down of 2008 while the S&P 500 dropped 50% in 18 months. But even had you stayed entirely in index funds and lost 50% you'd have greatly recovered in the long run the 500 went from 676 at it's low in 2009 to 2200 today - nice bounce that folks who panicked and got out at a loss in the recession probably missed that initial big bounce back that started in 2010. Cash in the mattress has it's place but not as the main investment engine.

[Argonne69]

In a word, yes. For planning purposes the new normal is to use 95 as the end point when assessing portfolio survivability via monte carlo simulation. In the current investment climate with reduced return expectations it is very difficult to get a portfolio to sustain through thirty years of withdrawals if the bond component equals your age. The size of the portfolio would have to be very big and/or the withdrawal rate quite low.

 

Is there a new rule of thumb, e.g. age - 10? 20?

 

'Looking forward to a life of Kraft Mac and Cheese and bologna sandwiches. I have to skimp in some areas to keep my golf equipment fix satisfied.

 

I don't like rules of thumb. It really comes down to what you need to grow your investment at to reach your goals and how much volatility you can handle. It becomes a balancing act of contribution rate, required rate of return and risk tolerance.

 

This is a risk tolerance questionnaire that I have used in the past with good success. It is designed for the Canadian market, but the general split between equities and fixed income would still apply.

 

All depends what your retirement lifestyle is and what your goals are - that drives asset allocation more than age does.

 

To the OP, buy equity index funds and wake up in 30 years.

 

The basic rub for most of us is that we have little clue how we're going to spend retirement. Going to move to a luxury condo on Miami Beach and join a fancy country club, or are we going to by a little ranch house in a remote rural location and spend our hours reading books on the patio? I imagine most of us will have little or no debt when we retire, so the cost of living would be lower.

 

For those without kids, I joke that the goal should be to write your last check to the funeral home, and have it bounce because you're overdrawn by $0.01. However, I'm sure most folks would want to have something left to will to their kids, nephews/nieces, and/or charity.

 

Unlike our parents and/or grandparents, the vast majority of us do not have a pension plan that will guarantee a monthly income for life. With a 401K, we have to make sure the money lasts. I guess one option would be to use some of the funds to purchase an annuity that pays out until death, but that generally means you're living on less per month.

[PixlPutterman]

Basic question, do you believe your life expectancy should play a major factor in your stock/bond allocation strategy? The basic strategy is that the percentage of bonds should be your age. If you are 65 years old, then 65% of your portfolio would be in bonds.

 

However, life expectancy is generally rising, although it did take a minor dip recently. If one expects to live to 90 or 95, can one really afford to have such a high percentage of their portfolio in a low yield asset, given that their savings have to last 25 to 30 years?

I'm 66 and at 60/40 which is down from my younger days. Don't plan on going any lower but this is most always a topic with our guy at Fidelity.

Most of our stuff is tax managed portfolios except our one hold over that I never let Fidelity get their hands on and sell and diversify though they've tried in the past but

have given up - bought Microsoft way, way back in the day - only single stock I own and pretty much the only single stock I've ever owned. Wife and I have had the

good fortune to retire (me at 51 and she at 57) and not have to even dip into our investments. Though in a few years, I'll have to start puling from the old IRAs.

 

On the other hand, we have no debt and own our homes outright - beside managing investments I'd advice folks to get debt free as fast as possible. We gave our 3 sons the gift of a debt free college education (there went my wife's porches) - and remind them at opportune moments. Pay cash for everything (though we get the credit card perks) and have a good chunk in cash just wasting away at .0001% LOL.

 

I my best to follow that advice already, We are Dave Ramsey fans at our house. well our apt :)

[PixlPutterman]

For the time being I bought into 3 funds - FNCMX - FSELX -FSTMX

[Bob Cat]

Basic question, do you believe your life expectancy should play a major factor in your stock/bond allocation strategy? The basic strategy is that the percentage of bonds should be your age. If you are 65 years old, then 65% of your portfolio would be in bonds.

 

However, life expectancy is generally rising, although it did take a minor dip recently. If one expects to live to 90 or 95, can one really afford to have such a high percentage of their portfolio in a low yield asset, given that their savings have to last 25 to 30 years?

I'm 66 and at 60/40 which is down from my younger days. Don't plan on going any lower but this is most always a topic with our guy at Fidelity.

Most of our stuff is tax managed portfolios except our one hold over that I never let Fidelity get their hands on and sell and diversify though they've tried in the past but

have given up - bought Microsoft way, way back in the day - only single stock I own and pretty much the only single stock I've ever owned. Wife and I have had the

good fortune to retire (me at 51 and she at 57) and not have to even dip into our investments. Though in a few years, I'll have to start puling from the old IRAs.

 

On the other hand, we have no debt and own our homes outright - beside managing investments I'd advice folks to get debt free as fast as possible. We gave our 3 sons the gift of a debt free college education (there went my wife's porches) - and remind them at opportune moments. Pay cash for everything (though we get the credit card perks) and have a good chunk in cash just wasting away at .0001% LOL.

 

I my best to follow that advice already, We are Dave Ramsey fans at our house. well our apt :)

 

Beans n rice, baby!

 

A modest, paid-off home and vehicles w/ money "in the bank" is very satisfying and liberating! Freedom!

[Ron Swanson]

Three really smart comments were mentioned on this thread that I whole heartily agree with.

 

1. ALWAYS take advantage of your companies match for your 401K, that's free money.

2. Sit down with an adviser to get an idea on what you will need to have saved to reach your goals and live your desired lifestyle at retirement then create a plan and commit.

3. Equity Index Funds are a great way to go for most people, also not a terrible idea to open your own IRA after reaching your company max match, gives you more control.

 

Best of luck, OP!

[Argonne69]

Does it really take an advisor to figure out how much you are going to need to retire? There are plenty of basic retirement calculators on the web.

 

The most basic rule of thumb is that you'll need 20x your yearly needs to retire at 65, assuming your untapped balance compounds at 4% interest.

 

For example, a person making $100,000 a year will likely need 85%, or $85,000 a year in retirement. With a starting fund of $1.7 million, and withdrawing $7084 a month starting at age 65, the savings will run out in 30 years. (https://www.calcxml....l-my-money-last)

 

Of course, if you believe you'll live a longer or shorter life, you'll need to adjust accordingly. Also, can you count on 4% return? Can you live on less than 85% of your retirement salary? How is inflation going to effect living expenses? Do you want a sizeable chunk remaining to leave to your heirs?

 

In the above example, if you increase the monthly withdrawals by 2% to account for inflation, the money runs out in 22 years.

 

Also, this calculation does not take into account Social Security. If you believe that the fund will not be insolvent, you can adjust accordingly.

[somaplr]

Does it really take an advisor to figure out how much you are going to need to retire? There are plenty of basic retirement calculators on the web.

 

The most basic rule of thumb is that you'll need 20x your yearly needs to retire at 65, assuming your untapped balance compounds at 4% interest.

 

For example, a person making $100,000 a year will likely need 85%, or $85,000 a year in retirement. With a starting fund of $1.7 million, and withdrawing $7084 a month starting at age 65, the savings will run out in 30 years. (https://www.calcxml....l-my-money-last)

 

Of course, if you believe you'll live a longer or shorter life, you'll need to adjust accordingly. Also, can you count on 4% return? Can you live on less than 85% of your retirement salary? How is inflation going to effect living expenses? Do you want a sizeable chunk remaining to leave to your heirs?

 

In the above example, if you increase the monthly withdrawals by 2% to account for inflation, the money runs out in 22 years.

 

Also, this calculation does not take into account Social Security. If you believe that the fund will not be insolvent, you can adjust accordingly.

 

If a person makes $100k a year and spends and spends $85k in retirement, unless he's saved his REAR, he's going to go broke. Again, if you make $100k you aren't spending a $100k for your pre-retirement living lifestyle. A retirement living lifestyle is based upon what you spend to make you happy and do the things you want to do, not your gross pay. If you make $100k pre-retirement, you aren't even netting $85k. There is no "rule of thumb" basically because everyone has different variables.