First 401k -need advice

if available, you should look at one of the "life cycle" funds that have become very popular in 401k plans. You just pick the fund with the date of your expected retirement and the allocation (bonds vs stocks) will change (become more conservative) as you get older.

Do you have to put 100% of it into a single fund? Sprinkle it around...

forget the 401k. Life is short. Chances are you won't even be around to spend that money. Do you know how many people die within 2 years of retiring? My dad died 2 months after retiring. Eat, drink and be merry. Tomorrow is promised to no one. Enjoy your money and your life while you are young and healthy.

Ditto lifecycle funds: these are (FINALLY!) getting more and more exciting and appropriate.

If that isn't what you want, choose a balanced fund (I have oft touted Vanguard's Wellington Fund--cheap and good; S&P-like returns at much lower risk, i.e., it does well in down markets).

So, put the money somewhere cheap and good for now (lifecycle or balanced) then raid Vanguard's libraries (and that of my other fave,

http://www.ifa.com

) until you know a lil bit.

life is short.... wrote:

forget the 401k. Life is short. Chances are you won't even be around to spend that money. Do you know how many people die within 2 years of retiring? My dad died 2 months after retiring. Eat, drink and be merry. Tomorrow is promised to no one. Enjoy your money and your life while you are young and healthy.

Not sure if you are serious or not, but I'd rather bet on a long life in retirement than the alternative. The thought of having to go to work in my 60's, 70's and 80's is depressing enough for me to want to save for retirement.

mattk wrote:

...would like someone to maybe explain to me whats working well right now, not so well, etc.

Lesson #1: The above is irrelevent.

Thank you for the advice so far. I trust the people on letsrun with this advice more so than the financial lady at my office. Strange.

"lifecycle" funds, or targeted retirement funds are great for the novice investor (which you seem to be). As already described, they start off with more stocks as you are younger and they progressively get more conservative (more bonds) as you get closer to retirement. Watch out though or it might get too conservative for you.

IF you're going to do a lifecycle fund, just put all your money in it. If you don't want to do that, then pick mostly more aggressive funds if you are 20+ years away from retirement and less aggressive if you are within 5 years.

Forget the advice from the guy who said most people die within 2 years of retirement. His dad died soon after retiring, but that doesn't mean everyone does. Many people die soon after retiring because they didn't put any money away so they had to work as long as they were able. Don't fall into that trap.

I know a guy who invested a ton and retired at age 53. He's been traveling the world with his wife, and he's runs marathons all over the world, and he's now over 70 and going strong. All the schmucks who didn't invest like he did had to work until they were 67, and then when they finally retired, they had little more than their Social Security checks to keep them going. Not a good plan.

Too many kids in their 20s think that anyone 40 and over doesn't know how to have fun. Ha! We have MORE fun because we have more MONEY!

Invest a ton. Retire early. Greatly enjoy the last half of your life not having to work.

life cycle funds will take the guess work out of it for you. the idea is they will take care of putting you more aggressive stuff early in your career while you have plenty of time to ride out the ups and downs, then move you into more conservative stuff as you near retirement to protect your gains. most of the time they are just a fund of funds specifically desgined for 410ks they invest in all kinds of things - tech, health, manufacturing , services etc both domestic and global as to be a diverse as possible. the firms offering them have been more diligent about keeping the fees low but like any other fund - they are not all created equal. start by asking for all 401k's fund prospectus from your employer - many 401k now have that stuff online - check out the moringstar rating - they provide a free and impartial rating of the funds earnings vs fees - a rating of 4 and 5 are good, 1-3 are usaully dogs.

do some reading, ask ? and start saving early. you dont have to starve yourself while your younf and carefree, but start putting 6% away to get the max employer match while in your twentys will put you way ahead of the curve - that what it all about - beating the competation isn't it?

F-Pole

Good thing your friend lived til he was 70 to enjoy his money. I say live a little in the hear and now, but that is just my advice. Oh and yes I'm college educated.

Broe---Legion wrote:

F-Pole

Good thing your friend lived til he was 70 to enjoy his money. I say live a little in the hear and now, but that is just my advice. Oh and yes I'm college educated.

I here you dude.

mattk wrote:

So im going to start my first ever 401k. Anyone have advice on wether i should be aggressive, conserative, pick mid cap or large cap. I understand some of the basic principles of the various investing options but would like someone to maybe explain to me whats working well right now, not so well, etc. Email me if you can help, we can discuss, my age, income, etc.

First bit of advice: Don't pull money out of your 401K unless you have absolutely, positively exhausted every other possibility and even then, don't do it unless your house or health is at risk. Taxes and penalties will kill you. Don't pull the money out to buy a house. Don't pull the money out to pay off a credit card. Don't pay off student loans with it. Don't. Do. It.

As for how you distribute your money - I'm assuming you are a ways away from retiring, so conservative allocation is a terrible choice. Retirement date targeted funds are great because you don't have to think (I use them for IRAs). For my 401K I think I'm 75% S&P and 25% some balanced fund that I don't recall. Obviously anything can happen and that might be a terrible choice over the next 20 years, but that's true of anything. I don't like managed funds (I don't believe that you can beat the market over the long haul), but that's a personal preference and you are free to disagree.

Oh, shove every dime you can in there. If your company matches then do a little dance of joy and see if you can shove even more in.

I also believe in living while you are young. I just don't believe having fun at the expense of your 401k is a good idea. Most company matched 401k's match anywhere up to 6%. For people in their 20's contributing that 6% means a paycheck reduction of $150-300 per month, small beans.

Investing Runner wrote:

I also believe in living while you are young. I just don't believe having fun at the expense of your 401k is a good idea. Most company matched 401k's match anywhere up to 6%. For people in their 20's contributing that 6% means a paycheck reduction of $150-300 per month, small beans.

Damn straight brother! Many companies will give 50% on the dollar up to 6%, so if you put in 6% the company in effect gives 3% -- FREE MONEY! You'd be a FOOL to pass this up.

If you make 40,000 per year, then that's just $2400 you provide each year (and because your taxes are less, the amount you see from your paycheck is even less than that!), and then the company provides another $1200 a year, so that's $3600 per year. Do that beginning at age 22 and do it for 40 years, even if you NEVER get a raise (which of course is ridiculous) you'll have $1,007,211.74 cents). 1 MILLION dollars just for giving up $100 per paycheck (actually because of taxes it will be less than $100 per paycheck).

If you don't want to work full-time until 62 or 65 or 67 (and I don't) then put in more, drive your cars longer than you would have -- there's hardly any sacfirice. Even if you up your contribution to $500 a month or more, how much more great living could you do on $500 more a month? Seriously.

Bank some cash, still have fun and take vacations, but either retire early or retire on time with a shitpile of money -- do it right and you can retire EARLY still with a shitpile of money. Sure in hell beats all those people who carry credit card debt and don't own their homes when they are of retirement age because they borrowed against it, etc.

Flagpole Willy,

What APR are you using to calculate the retirement amount?

Investing Runner wrote:

Flagpole Willy,

What APR are you using to calculate the retirement amount?

In answer to the question; FW is using 12.1%, likely the current long-term S&P 500 return for stocks. I believe the long-term all-stock return is closer to 11%.

But before criticising the math (which ignores inflation), remember that FW did the calculation with no raises whatsoever.

True story: my buddy put $2000 into an IRA in 1982, and $1500 the next year, then never put in another dime into that particular account (FWIW, he has many other accounts/business/etc). That lil acct is closing in on $200 grand...

Never, never, NEVER underestimate the power of compound interest, my friends; NEVER!

Once again thanks for all the great advice. From everything i have read so far this seems to be rather interesting stuff. I am definitely going to explore this stuff.

Hieronymous wrote:

In answer to the question; FW is using 12.1%, likely the current long-term S&P 500 return for stocks. I believe the long-term all-stock return is closer to 11%.

But before criticising the math (which ignores inflation), remember that FW did the calculation with no raises whatsoever.

True story: my buddy put $2000 into an IRA in 1982, and $1500 the next year, then never put in another dime into that particular account (FWIW, he has many other accounts/business/etc). That lil acct is closing in on $200 grand...

Never, never, NEVER underestimate the power of compound interest, my friends; NEVER!

Actually, I use 8% when calculating, because I'm being conservative. In a well-managed fund, 10-12% is very possible. So, in my example before about putting away just $100 per paycheck (and then a 3% company match), in 40 years that brings slightly over $1 million. If you get better than 8% you will have more.