Any tips on 401k's?

[darkxshade]

Ok, it's clear I'm exaggerating when I said "abundantly clear". What I meant is that at the time, at least for me, there was a genuine fear that it wasn't over. Did you not get that feeling yourself? It's not everyday you see companies like Bear Stearns file bankruptcy. And as I admitted, it was a calculated move and it was the one and only time I made a huge change to my 401k. I'm not talking about your ever so often market corrections here, those I usually just stay put.

Not the rebalancing I was talking about, I do those readjustments myself but in this case I went from something like 90% stocks, 10% bonds to 50% bonds, 25% money market 25% stocks. I basically shifted entirely out of small caps, mid caps and internationals because they were much riskier to keep a position on going into 2009. I did however continued to contribute into them because I didn't want to bother changing my contribution choices.

All I'm advocating is that people should not just simply make a few selections in their 401k and ignore it into retirement.

edit: ok so I had to go back to your original post to recall why I even replied to begin with. Anyway, you said one should not panic when a market takes a dive and while I agree for the most part I felt I had to bring up a point that there will be times when it's actually prudent do something about it.

 

[Jeff7]

Ok, it's clear I'm exaggerating when I said "abundantly clear". What I meant is that at the time, at least for me, there was a genuine fear that it wasn't over. Did you not get that feeling yourself? It's not everyday you see companies like Bear Stearns file bankruptcy. And as I admitted, it was a calculated move and it was the one and only time I made a huge change to my 401k. I'm not talking about your ever so often market corrections here, those I usually just stay put.

Admittedly, I can't help but think we're in some kind of bubble right now. The stock market really experienced a hell of an increase from 1995 to 2000, and then it looks like the boom&bust economy that was described in the "good old days."
Is that the "new normal?" Don't know.

I'll say this though, if you plot the market on a log chart, the historic rate of increase looks far more steady, even through the late 90s.

Not the rebalancing I was talking about, I do those readjustments myself but in this case I went from something like 90% stocks, 10% bonds to 50% bonds, 25% money market 25% stocks. I basically shifted entirely out of small caps, mid caps and internationals because they were much riskier to keep a position on going into 2009. I did however continued to contribute into them because I didn't want to bother changing my contribution choices.

All I'm advocating is that people should not just simply make a few selections in their 401k and ignore it into retirement.

Different approaches then.
Some of the Target Retirement funds aren't bad at all for doing just that - like a DIY pension. Buy it, contribute to it regularly, and let it do its thing. The fund company handles the slow march toward an asset allocation that shifts more toward bonds as the target date approaches.

 

[Doppel]

Don't try and time the market with your 401k. You are not a professional and even if you were you wouldn't be able to time it.

 

[darkxshade]

Admittedly, I can't help but think we're in some kind of bubble right now. The stock market really experienced a hell of an increase from 1995 to 2000, and then it looks like the boom&bust economy that was described in the "good old days."
Is that the "new normal?" Don't know.

I'll say this though, if you plot the market on a log chart, the historic rate of increase looks far more steady, even through the late 90s.

I share the same feeling as you regarding the current run-up but unlike the subprime meltdown, I haven't been given any reason to worry yet. The market may very well correct itself which I mentioned a few times and it wouldn't phase me in the least to do anything about it. It would have to take a significant event for me to re-evaluate my position. I believe it would be a benefit for everyone to do when it happens. It's my money, I should care what's happening to it.

Different approaches then.
Some of the Target Retirement funds aren't bad at all for doing just that - like a DIY pension. Buy it, contribute to it regularly, and let it do its thing. The fund company handles the slow march toward an asset allocation that shifts more toward bonds as the target date approaches.

Right, target funds are great exactly for that and anyone who doesn't want to be bothered dealing with their own retirement finances should definitely look into those. Unfortunately they were not available to me at the time by my employer. They are now though but even then I like having more control over my 401k. I take it as a learning experience by keeping track of it on my own. I'm afraid I'd turn complacent once I "set it and forget it". Maybe when I get older I'll turn towards target funds.

 

[ichy]

Instead of selling off holdings which you really can't do in a 401k(unless it's been rolled over to your personal brokerage), it's better to watch the signs and move it into safer funds like a money market that won't have a sharp drop as a stock fund.

So for me, it's all about moving my position in and out of the various choices to mitigate damage and take advantage of recoveries.

Professionals can't time the market, what makes you think that you can?

 

[Jeff7]

I share the same feeling as you regarding the current run-up but unlike the subprime meltdown, I haven't been given any reason to worry yet. The market may very well correct itself which I mentioned a few times and it wouldn't phase me in the least to do anything about it. It would have to take a significant event for me to re-evaluate my position. I believe it would be a benefit for everyone to do when it happens. It's my money, I should care what's happening to it.

I do find it concerning too, though, that wealth inequality is approaching levels prior to the Great Depression (middle and lower class can't consume and spend as much if they don't have anything to spend), and the slow removal of various safeguards put in place after the Great Depression, intended to prevent another one.
Go on the rollercoaster, get a concussion and a broken tooth. Then go back in a few years. "I remember this one! Let's do it again!"

Or...maybe it'll hiccup like it does sometimes, and keep following its historic norms.

Right, target funds are great exactly for that and anyone who doesn't want to be bothered dealing with their own retirement finances should definitely look into those. Unfortunately they were not available to me at the time by my employer. They are now though but even then I like having more control over my 401k. I take it as a learning experience by keeping track of it on my own. I'm afraid I'd turn complacent once I "set it and forget it". Maybe when I get older I'll turn towards target funds.

Yeah...part of me knows that a Target Retirement fund would probably do the trick. But, I'm also the sort who, years ago, couldn't help but try to overclock and tweak a computer to squeeze out what I could. Some of that mentality remains, though toned down considerably.
Even so, I've only got two funds in my 401k - large cap value and large cap growth, in a proportion that evens it out to a large cap balanced. The small cap fund is the second-most expensive fund available, close to 1.8% ER.
IRA: Total stock and total bond index funds. Cheap, and reasonably diversified, though the portfolio as a whole is tilted toward large-caps (as is the entire market) by the 401k funds - which isn't a terribly bad place to be. Even an inexpensive S&P 500 index fund is still a pretty good investment option.

 

[dr150]

....Some of the Target Retirement funds aren't bad at all for doing just that - like a DIY pension. Buy it, contribute to it regularly, and let it do its thing. The fund company handles the slow march toward an asset allocation that shifts more toward bonds as the target date approaches.

Target Retirement funds are a great option for the ultra lazy investor or people like my wife :whiste: who have NO interest in finances and/or are workaholics who can't be bothered with this shit.

These funds are great for that type of character since it'll rebalance the stock/bond ratio automatically.

It's a set it and forget it type of fund.

OP, keep in mind that these funds generally have a lower expense ratio than average mutual funds, but still too high for someone who could select quality ETFs on their own that perform better and have a lower expense ratios.

401K funds have options of taking the money from a 401k account and investing it outside the available funds, such as Fidelity's Brokeragelink or JP Morgan's CISC, etc, thus giving you exposure to the cheap, better performing ETFs.

Investors should log-in to their 401k and rebalance once a year or every 6 months so your mix of equities/bonds stays balanced. Websites now have options to do this rebalancing automatically in a specific given time frame. Call your brokerage if you don't know how to do this on their website.

All I'm advocating is that people should not just simply make a few selections in their 401k and ignore it into retirement.

This advice has to be repeated.

People should check their retirement accounts at least once a year or when you know things are definitely going South. (i.e. the Euro breaking up, China and their shaky housing bubble, another bankster uber-fraud ala 2008)

Sure the markets will recuperate, but you can soften the blow by moving your money on the defensive into bonds/cash in the account, until the tornado passes through (1-2 years on average). All it takes is checking some boxes online to move the money around when the shit hits the fan.
.
.
.
.
.
To that end, while I agree with some of the recommendations in this thread of putting some money into Foreign, now is not that time. If anyone has checked returns, they're consistently underperforming versus the domestic market for quite some time.

There's also global headwinds that's showing legitimate worry....with China (housing bubble: http://www.irishtimes.com/business/...w-cities-when-will-the-bubble-burst-1.1352989), Japan (huge casino-like QE--http://etfdailynews.com/2013/04/10/quantitative-easing-essentially-a-line-of-credit-for-the-u-s-government/), and Europe (Euro Debt Crisis--Italy, Spain, Portugal, etc): http://www.upi.com/Top_News/Analysis/Walker/2013/04/15/Walkers-World-Euro-agony-grinds-on/UPI-76411365998760/).

Foreign is so sketchy nowadays that it's a primary reason why analysts are repeatedly saying to investors that the US is the best house on a bad block (and the rest of the world knows this for 2013+) and it's a best buy. The adage that when the "US catches a cold, the rest get the flu" is certainly true, especially nowadays.

As to the issue about the current state of the market......Money is still heavily sitting on the sidelines and all the money you see propping up the market is overwhelmingly sideline institutional money. Scared foreign money (i.e. Europe/Asia) is also just beginning to see its way into the US for a higher ROI and safety (witness the recent market investments into the US by the Japanese).

Take also into account that $13+ Trillion(!) of scared/burned post 2008 consumer money is still sitting on the sidelines in safe ~0% MM accounts (it can't be there forever as you need to invest that money for retirement) and take into account that company valuations are noticeably lower than the 2008 crisis and companies are also much more efficiently run than '08, then you have a good case that the market is nowhere near finished......with a watchful eye to Europe, China, Japan as the Murphy's Law factor.

 

[Balt]

Question:

I see a lot of people mentioning bonds as a way of hedging against a market decline. I've noticed that the bond fund in my 401k usually moves in the opposite direction of the markets.

Now that interest rates really can't get any lower (and presumably they will climb eventually), however, how safe are bond funds for the long-term? There's a lot that's been written about a bond bubble, but if both the markets and bonds are overbought, what's the strategy?

On another note, I'll echo what others have said about not trying to time the market with your 401k. I did that just as an experiment in the first year I had a 401k b/c I didn't really have much to lose anyway. The market is just too unpredictable, and it recovers in very rapid fits and spurts (over a long period of time) that are hard/impossible to predict. If you want to play day-trader, do it with some extra money you don't mind losing. Don't use your essential retirement money.

 

[jpiniero]

Now that interest rates really can't get any lower

They could, honestly. Negative interest rates have been done before. That doesn't mean it'll happen.

On another note, I'll echo what others have said about not trying to time the market with your 401k.

Timing the market is about avoiding a crash, not a blip.

 

[bryanl]

Seems pretty simple, max out employer contribution (free money), try to pick a stable low-fee fund, and ignore it.

Funds with substantial exposure to stocks are not stable but are often still be worthwhile in the long term. Chart the total bond market against the total stock market over a 20-30 year period to see what I mean. On the other hand ignoring the portfolio is likely a good idea.

 

[UglyCasanova]

Worth a watch

 

[desura]

So how about diverting 401k's entirely to company stock? It's possible, right? And on top of that get an employee discount on stock.

Heck, at that rate, even with a 10% early withdrawal penalty, the discount on company stock will make up for that.

 

[Balt]

So how about diverting 401k's entirely to company stock? It's possible, right? And on top of that get an employee discount on stock.

Heck, at that rate, even with a 10% early withdrawal penalty, the discount on company stock will make up for that.

That seems very risky if your 401k is in a diversified fund. No matter what company you work for, putting all of your eggs in one basket is probably not a good idea.

 

[Vic Vega]

Worth a watch

They're just saying what people paying attention have known for years, index funds are the way to go and managed funds are for suckers.

 

[Balt]

They're just saying what people paying attention have known for years, index funds are the way to go and managed funds are for suckers.

Haven't watched the video yet, but I hope everyone knows that this is true. You can pay a high expense ratio for actively managed funds and still come out way behind a low expense ratio index fund.

In short, you're getting scammed with a lot of brokers. Ignore what sounds good and look at the performance and the expense ratio.

 

[desura]

That seems very risky if your 401k is in a diversified fund. No matter what company you work for, putting all of your eggs in one basket is probably not a good idea.

Eh, but what I'm saying is that if you combine an employee discount on stock purchase + company matching funds minus 10% early withdrawal penalty...you end up ahead.

 

[Jeff7]

That seems very risky if your 401k is in a diversified fund. No matter what company you work for, putting all of your eggs in one basket is probably not a good idea.

Agreed. If you use 100% company stock in your retirement fund:
1) Your source of income is that company.
2) Your source of retirement funding is that company.

If anything happens to that company, you're quite thoroughly screwed.

Enron is a popular example, but for good reason: Plenty of people thought it was a great company, and virtually risk-free, so they had a lot of their net worth wrapped up in its stock. A company can be doing great on the outside, but if there's shady business going on behind closed and locked doors, you're not likely to find out about it until it's too late.

...
Timing the market is about avoiding a crash, not a blip.

And of course, even trying to do that doesn't work so well most of the time. Flip through some mutual fund charts that encompass the crashes in 2001 and 2008. They all follow the same trends. The expensive managers of those funds felt the full pull of the market average, and their funds were dragged down, just as an index fund would be. If they can't time the market well enough to preserve the value of the funds they're managing, who else has a reasonable shot at doing it?

Eh, but what I'm saying is that if you combine an employee discount on stock purchase + company matching funds minus 10% early withdrawal penalty...you end up ahead.

I think you'd also be adding short term capital gains taxes.

 

[desura]

That seems very risky if your 401k is in a diversified fund. No matter what company you work for, putting all of your eggs in one basket is probably not a good idea.

Talk about fortuitous:

http://video.pbs.org/video/2365000843/

I'm just wondering: if you buy company stock and plop it into the 401k, technically wouldn't that allow for zero fees?