How should I invest in my 401(K)?

[RaistlinZ]

Hey all. I got sent some packet info about my company's 401(K) but I'm having a hard time deciding how I should invest in it.

I've been told it's good to be aggressive in your early years (I'm 25 years old), so I was thining having it 60% in stocks, 20% bonds, and 20% cash. Does that seem spread out enough while minimizing risk?

My financial goal at this point in my life is just to build long term wealth.

 

[ingenuiti]

At the age of 25, invest in all stocks.

 

[KLin]

I've got about 95% of my 401k in stocks.

 

[thegimp03]

When you're young it's not like you'll need that account or really have access to it for another 35 years or so and you can be more risky with your investments. I would do at least 90% in stocks if I were you, since it's for the long term and over 35 years the stock market will definitely grow.

 

[Engineer]

Buy long and lots. Dollar cost averaging is your friend, especially at such a young age.

 

[alrocky]

60/20/20 (that's really 60/40) is not aggressive. 80/20 should be aggressive enough. You should invest at least 10% of your income. What mutual funds or stocks are available thru your company?

 

[kranky]

Yeah, list the names of the mutual funds available in your 401k.

 

[Al Neri]

stocksstocksstocksstocksstocksstocksstocksstocksstocksstocksstocks

 

[rahvin]

Originally posted by: RaistlinZ
Hey all. I got sent some packet info about my company's 401(K) but I'm having a hard time deciding how I should invest in it.

I've been told it's good to be aggressive in your early years (I'm 25 years old), so I was thining having it 60% in stocks, 20% bonds, and 20% cash. Does that seem spread out enough while minimizing risk?

My financial goal at this point in my life is just to build long term wealth.

At 25 you should be 100% stocks and it should remain that way until your mid 50's where you begin shifting towards bonds very slowly.

 

[dr150]

Originally posted by: RaistlinZ
Hey all. I got sent some packet info about my company's 401(K) but I'm having a hard time deciding how I should invest in it.

I've been told it's good to be aggressive in your early years (I'm 25 years old), so I was thining having it 60% in stocks, 20% bonds, and 20% cash. Does that seem spread out enough while minimizing risk?

My financial goal at this point in my life is just to build long term wealth.

At your age:
80% Stock (index, emerging market int'l and flavor of the year like Energy or China)

10% Bonds

10% Cash


Build up 5 months of savings just in case the sh!t hit the fan.

 

[kalster]

i have a good mix of small, mid, large cap stock, my 401k is up 15% in the past few months

 

[Descartes]

1) Investing in stocks isn't like just picking anything from the S&P. Not only is it important to know in which company you should buy issues, but it's also very important to know when to buy them. Putting all of your money into stocks right would, imo, be absolutely catastrophic! I can give you 3,000 reasons for this if you're interested. A lot of stocks are moving rather rapidly, but you can't just randomly pick them. There will be a much, much improved market buying opportunity in the coming year or so.
2) Investing in bonds with question as to whether the Fed will keep raising rates would be a bad move, imo. If the Feds raise the rates then your bond immediately loses value; of course, depending on the bond you might accept that.
3) Cash is indeed important.

In the end you really have ONLY ONE investment that has a guaranteed return: Educate yourself! Do not let anyone tell you where to put your money (including me). Educate yourself as much as possible so that you can make the right decisions. This could be the difference between 25% return and no return, or a return so heavily taxed and diminished with fees that you might as well have thrown it into ING.

Good luck!

 

[RaistlinZ]

Thanks for the input so far. Here's a quick list of the Funds that are available from my job. I have zero experience with these though, so if you see any that you know to be decent let me know:


Cash

1. INVESCO Stable Value Trust - Money Market/Stable Value
Expense Ratio: 0.41%

Bonds

1. PIMCO Total Return Fund - Administration Shares (Intermediate-term Bond Fund)
Expense Ratio: 0.68%

Stocks

1. AIM Basic Value Fund - Large Value Fund, GTVLX
Expense Ratio: 1.34%

2. AIM Mid-Cap Core Equity Fund - Mid-Cap Blend Fund, GTAGX
Expense Ratio: 1.41%

3. American Funds EuroPacific Growth Fund - Foreign Large Blend Fund, AEPGX
Expense Ratio: 0.87%

4. Federated Mid-Cap Index Fund - Mid-Cap Blend Fund, FMDCX
Expense Ratio: 0.49%

5. INVESCO 500 Index Trust - Large Cap Blend Fund
Expense Ratio: 0.27%

6. Managers Special Equity Fund - Small Growth Fund, MGSEX
Expense Ratio: 1.43%

7. MFS Mid-Cap Growth Fund - Mid-Cap Growth Fund, OTCAX
Expense Ratio: 1.26%

8. MFS Strategic Growth Fund - Large Growth Fund, MFSGX
Expense Ratio: 1.32%

9. PIMCO Renaissance Fund - Mid-Cap Value Fund, PRAAX
Expense Ratio: 1.11%

Other

10. Vanguard STAR Fund - Moderate Allocation Fund, VGSTX
Expense Ratio: 0.37%

 

[dionx]

i'm about your age and i'm all in stock and as aggressive as i can get.

 

[Taggart]

Go with Vanguard

 

[Descartes]

Look to Lipper to research those funds that you've listed. That should give you a better idea of the expenses, how the funds perform, etc. There are a lot of factors that go into determining whether or not a fund is worthy of your investment. If you find any of the terms confusing just look to Investopedia.

 

[rahvin]

INVESCO 500 Index Trust, is a standard S&P500 index mirror fund. It's fully diversified with holdings in the 500 stocks that compose the S&P500 index. Expense ratio is low, close to the lowest in the industry (vanguard's). If you want simple, easy, and not have to worry about anything put 100% of your witholdings into that fund. It performace will mimic the country's economic performance as a whole. Personally I would put 10-20% into the international fund as well to help balance our out of control deficiet spending. Traditionaly international investing has been subpar when compared against investing in the american market, but as I said, given current US economic policies and the rise of China it may make sense over the next couple decades to invest internationally and given your timeframe it's a bet you should make as the risk/reward ratio is highly skewed at this time.

 

[everman]

You are investing for the long term, I'd put a large part of that into an S&P 500 index fund. Over the long term, such as your case, most people have a very hard time beating the market (even the experts).

 

[Engineer]

Originally posted by: everman
You are investing for the long term, I'd put a large part of that into an S&P 500 index fund. Over the long term, such as your case, most people have a very hard time beating the market (even the experts).

QFT.

The S&P 500 has beaten over 80% of all mutual funds over all ranges of time. It's a tried and proven investment (past results do no guarantee future results).

 

[RaistlinZ]

Thanks for the input, rahvin and everman. I've got just one more question for you all before I call it a night.

I was going over the details of the funds tonight and I noticed that some invest heavily into manufacturing stocks, some heavily into service stocks, and others heavily into technology stocks.

At first I was thinking it would be wise (for the long term) to spread out my investments into many different choices; however now I'm wondering if it'll be better to have the majority of my money in something sure-fire like the INVESCO 500 Index, and put the rest into one or two of the other higher-risk funds.

What do you think?

 

[Maximin]

If I were 25, I'd buy SPY, QQQ, some Healthcare and a biotech basket.
20% on money market. I'd also buy a property after the market adjusted next year.

Good luck!

 

[dr150]

Btw, most funds in a 401k suck realtive to star performers. For instance, in your company's 401k, they don't even offer a Vanguard Index Fund.

In any case, research the funds in company's 401k portfolio and diversify it as much as you can. Every company 401k has dogs, so choose the ones that have consistently provided positive returns even if it's small returns. It's still better than funds that shoot up and then have a negative year, right?

In the end, invest to the max of 100% company matching. The rest, open an account at Scotttrade.com (cheap fees) and invest in better return funds. A fund like the Vanguard Index fund is a good place to start as over long term you'll get 10%--a very good no-brainer return. Also research Morningstar.cm rated funds for the current short-term mack daddies.

 

[rahvin]

Originally posted by: RaistlinZ
Thanks for the input, rahvin and everman. I've got just one more question for you all before I call it a night.

I was going over the details of the funds tonight and I noticed that some invest heavily into manufacturing stocks, some heavily into service stocks, and others heavily into technology stocks.

At first I was thinking it would be wise (for the long term) to spread out my investments into many different choices; however now I'm wondering if it'll be better to have the majority of my money in something sure-fire like the INVESCO 500 Index, and put the rest into one or two of the other higher-risk funds.

What do you think?

If it was me I would do 80-90% Index500 and 10-20% into the international fund. What Engineer said is true, 80% of mutal funds fail to even match the S&P500 over any length of time. A riskier fund that moves more often (high expense ratio) generally is going to underperform the S&P, you are looking for long term returns, not short term. Remember that a bet on the S&P is a bet on the US economy as a whole and it's an incredibly diverse fund. Keep your contribution rate high (at least 10%) and forget about it, you will never miss the money if you start out with a high percentage.

 

[torpid]

Are you getting any matching?

 

[zendari]

I'm 19 and I have $4k in an S&P 500 fund. Good place to start in.