I'm fortunate to have a job that offers a 401k with contributions. For years I've tinkered with the markets on paper, writing analysis software for fun and recording market snapshots every 15minutes for years.
Anyway, when it came time to put real money into it I had to think deep and hard about it. My end view was that how you pick your plan directly correlates to your trust in the system (dollar value, inflation, market health). Sadly I am not optimistic so I picked the most conservative plan available.
Some friends would boast they made a 5-8%+ gain on their investments, but now that the year is over and I'm looking at the numbers. I made a whopping $58 gain this year. My point I didn't lose a single dime, but didnt really gain anything either while many people I know have lost 40%+ of their 401k.
What do you all recommend or feel? I'm still young and have read countless times that the younger you are the more aggressive you should be, then slowly migrate to more conservative means as you get older. The thinking is you have more time to make up for bad swings in the market.
For me, I guess for now, I'm more happy knowing I don't lose anything than worry about making bigger gains down the road. Silly?
Forgot to add, that there is some morality to it. After reading the news the past 2 years, I get the feeling that those aggressive plans which claim higher return rates are those same toxic loans and crappy money games that end up screwing people in the end (talking end users not people like me who are supposed to trust in buying them). It's not worth an extra couple % points to play in a game where some people loose their homes.
I may be completely wrong though.
I am definitely no expert in the finance game, but my $.02 says that if your employer is contributing, you should be maxing out your contribution, even if it is going into a conservative investment. That's free money you are getting.
Agree Ace_Face, I'm fortunate that my employeer puts in a % based on my salary regardless if I put in my own or not. Which sadly I haven't. I like the concept of a 401k, but it makes more sense to pay down debt as quickly as possible because I'll be saving long term.
So that % the company puts in on my behalf is literally free money, why I've tried to protect is so much.
Once I get my car and student loans paid off I'll work on saving more then.
Be greatful, not greedy.
right now is a good time to buy, as the market tends to run week. Once the market picks back up, those shares bought at a low end will spruce up your portfolio once they bloom alongside the recovery.
I will agree with OhioKimono. Buy now while the market is still somewhat depressed. If you have 20+ years until retirement, you can afford the risk. It will pay off long term. Best to not watch it constantly, but review and make adjustments -- at most once a year.
After you've saved the requisite 6 months living expenses that you can tap in case of an emergency or job loss, make the maximum contribution allowable to your 401k that draws the maximum employer contribution. However your 401k is structured, make certain the investments in the 401k are not all company stock. Think of those folks at Huntington Bank or Dana Corp who let their retirements ride on company stock in their 401k portfolios. If you've any ability to save any additional money then look at holding IRAs, or better yet at your age, Roth IRAs in indexed mutual funds. I'd recommend Vanguard's S&P 500 Index. In managed funds, Vanguard's Health Care Fund has had an excellent return even through the last decade. You absolutely should be investing. You can open a Vanguard account online. Vanguard offers no load funds with extremely low expense ratios. That's important. Invest a regular amount on a regular basis, ignoring market fluctuations. Stay away from brokers or advisors. They'll buy and sell to make commission. Newbie's advice to make adjustments no more than once a year is very, very good advice. When you near retirement move towards cash and away from stocks/mutual funds. At retirement you want preservation of principal and dont want to be caught in a bad market dip.
I should add, if you're writing analysis software then you know that diversity is key and never to hold a stock in isolation, hence indexing is a good investment strategy.
INeedCoffee, this is a Second Great Depression. What the market is doing now is called a "sucker rally". The talking heads lied to us, too, after the 1929 crash and well into the deepening First Great Depression (into 1933). We have the same sucker rally going on.
The stock market fell 90% from the 1929 high. In DOW terms, that's down to DOW 1400, applicable to today's market.
So my advice is to get out of it entirely.
401Ks are not known as being honest vehicles for sane investment for the common man. The "conservative" route you chose was merely the least risky route that your particular plan offered you. In other words, the people who setup that plan had already, SERIOUSLY skewed the plan against you. So you won't be able to put that money into the only truly conservative investment that you should be making in this Second Great Depression: Government bonds.
That's why I advise that you get out. Your employer match doesn't mean anything when you're facing such a steep fall in the DOW.
Without reading other's replys, I will basically suggest you go to the Vargard (my 1st choice) and/or Fidelity websites and use their self risk check system and follow their recommendations. I lost a bundle on my 401K. The funds I was in were suggested by a consultant you pay "up front" for financial advice. Now, here's the problem. The up front fee Guys are good to advise when times are good but when the market began to crumble they never called to tell me where the doors were to get out of the burning house...
So I rescued myself by using Vangard's website to choose a "Life Style" fund that's 60% stock and the remaining 40% is split between safe bond and money market funds. My wife says not to put $ amounts on here but I will say that I expect to recover to my original invested amount in a year based on what I've recovered so far. At least I expect to be even again.
I've been lucky enough to have not lost much in my 401k--now rolled over into an IRA. But I've also not gained much either. I've been doing the 30/30/30 thing, splitting everything up between high/med/low risk. It's money I won't be touching for decades, so I'm just going to let it do it's thing and not think about it much. If you are feeling secure, and especially if your employer does any sort of matching, by all means contribute as much as possible.
I thought long and hard about my decision, and opted to get out entirely over a year ago when the market was in the 13,000-14,000 range. I have no regrets at this point.
13,000 - 14,000? If this is the Dow Jones Industrial you're referring to I don't think so.
The last time the Dow was that high was Oct. 9, 2007 when it closed at 14,164.43. On March 5 2009 it closed at a new low of 6,594.44. Fallout from Lehman Brothers bankruptcy. It's been on a steady rally since then closing yesterday at 10,618.19. As GuestZero pointed out some analysts do indeeed call this a suckers rally. He refers to Gov't Bonds. Stay away from any municipal bonds or bond funds holding munis unless you do the homework on the solvency of the issuing authority. I'm assuming he means US Gov't Bonds. Safe? - Yes. Decent return? Nope. Also liquidity is low. Hard to get out of in a hurry if you have to.
The goal of a 401k is to make money in excess of inflation so that you can utilize it during retirement. The money that you have made from your investment so far is insignificant enough that you shouldn't even be having a 401k as a savings account will do you just as well.
401k means risk. Use a moderate and diversified investment to minimize that as best as possible. Talk to your broker. Being young means you can afford the risk. In the grand scheme of things, until you're losing TENS of thousands of dollars, loss on a 401k isn't that big of a deal. In fact, it's expected at times, so long as the end result 30+ years down the line is positive.
$100 may seem like a big loss now (at least $100 is an important sum to me) but in 401k terms, $100 is tiddlywinks.
What I'm basically saying is that unless you're willing to take some moderate risk so that you can make some money, you might as well stop the 401k and just stuff your cash in a jar and bury it. It'll be safer that way. Alternatively, invest in gold rather than colored paper. :)
Holland, I think you misunderstood...(or as Roger Clemens said, "Misremembered"...I said "OVER" a year ago..not last year...and by the way, it wasn't too long ago...13,058 on April 28 of 2008...i think you get the point.