How do I 401k?

WonderMink

Basically I'm trying to get some general advice on what to pick for my new 401k. I just turned 28 and have basically no retirement. My company now will match 20% up to 2k a year, on a 6 year vesting schedule, which frankly isn't very good but it is a start. I figure I will contribute up to the matching amount.

It will let me contribute any percentage of the total to 12 different funds with the default fund being Oppenheimer Cash Reserves A

There rest (if you are interested) are as follows

BlackRock Equity Dividend A
Columbia Acorn International A
Franklin Small Cap Value A
Fidelity Government Income
Fidelity High Income
Dreyfus Basic S&P 00 Stock Index A
Columbia Mid CAp Index Z
JPMorgan LArge Cap Growth S
Oppenheimer Developing Markets A
Ivy International Core Equity I
T. Rowe Price New Horizons

What should I be looking for in a fund? Is there somewhere I should go for financial advice? I've googled all the funds, but nothing seems to really stand out. Should I contribute more than the matching amount?

Should I hide my money in a mattress or bury it in the yard?

Kick_04

Who does your company use for the 401k services?

My company does something similiar and they use Great West. So I pay them a percentage of my amount in the 401k to move and take care of all my investments. I also only add in the amount to cover what the company matches to its full extent because that is free $$.

When you get older and have more money in the retirment fund, than you start paying more for them to help you. So that is when you pull out of it and drop yours into less aggressive funds if you do not like paying them every so often.


I am 27 and right now my investments are ....
36.65% International
14.20% Small Cap
12.11% Mid Cap
34.17% Large Cap
2.88% Bond funds

For your list of options it should say in the details as what they are considered.

Edit: I forgot also, Great West has 3 different types of help for different fees. It is something like giving you advice and letting you make your decisions, redoing your investments for a one-time deal, and every 3 months redoing investments for greater % of return.

Cauld

The most important thing is to ensure you're putting in enough to max out your match. After that it's a risk appetite issue (how risky are you comfortable with). Stocks are generally riskier than bonds. Long term bonds are riskier than short term, etc.

The two broad categories of funds are equity and bond. Equity funds invest in stocks, bond funds invest in loans to large companies or governments depending on the fund. There is a lot of advice out there as to how to split up your money between stocks and bonds, but for someone around your age I think the majority of it should be in stocks. It doesn't make a huge difference when you're starting out, but it becomes more important the more you have invested.

I think the most important thing to do when comparing the individual funds is to check their expense ratio, the lower the ratio the better and I choose funds almost exclusively based on how cheap they are (after I've decided the category of fund). I enjoy choosing my funds, but I think that for a management fee to pay off long term it would probably have to be less than 0.1%.

For your specific funds, the one that stood out tome is the Dreyfus Basic S&P 00 Stock Index A (also the only one I googled) It's an index fund, which I like because fees are low (0.2%) and its basically an investment in the S&P 500, so it comes diversified. Personally I would put about 50% there and split up another 40% among the various other stock funds leaving about 10% in bonds.

schuss

Cauld is on the right track.

First - check the management fees, as you don't want to be giving away any gains.
Second - Make sure you have an Equity-biased mix as you're young. Check out motley fool or other finance sites for what your target mix should be for each point in your life
Third - When you rebalance, try to rebalance future contributions, as you will pay a percentage of your existing investments to move them. I have some friends who are hyperactive about their 401k's and have screwed themselves with this.
Fourth - If your plan is to be mostly hands-off, stick primarily to things like the S&P index above, as they're great general market funds.
Finally, if you want to save like whoa for retirement, try putting any extra money you get from promotions directly into 401k's and IRA's. You won't notice the difference (as you had never seen that money), and you'll probably be able to put a bunch away quite quickly.

ThunderSaid

401k basics go like this:

1. AT A MINIMUM, contribute the maximum amount that your employer will match. It's free money, so grab it. Your description of how your employer does matching is a little confusing to me, but it looks like they're willing to hand over up to $2000, assuming you contribute $10000 in a year. (Maybe? I usually see this figure quoted as "They'll match X% of the first Y% I contribute, up to $Z." So, I'm not sure I'm parsing your numbers right.) Anyway, if you can sock away that much each year and still have chicken in your ramen, I suggest you do it. 65-year-old you will be glad you did.
2. The younger you are, the more aggressive and risky your investments probably should be. I don't know what the stats are for those funds, but you can find out their historical rates of return, fees, investment mixes, goals, etc. with a little reasearch. At 28, if I were you, I'd be looking for about three of those funds that have a growth strategy (as opposed to an income strategy) and are heavily weighted toward stocks (and probably small cap stocks for at least one of the funds.) Then split your investment evenly between them.
3. DO NOT TOUCH THE MONEY. If you retire at 65, do the 10000/year contribution with the 2000 match until then, and see a very achievable 5% annual return, you will have a little over $1.2 million when you retire (you will have contributed $370k). If you take money out early, you'll see a huge dent taken out of that, and you'll get a big tax penalty.

Bonus points: Also open an IRA and put in piddling little amounts that you won't even miss each month. Invest it in index funds. Be able to afford chicken in your ramen even after you retire.

Jasconius

That's a really weak company match program. SIX YEARS to vest? What the hell? I assume by the list of the funds you have access to you're some kind of government employee?

You're young so the most common wisdom is what you want a fund that's aggressively oriented for growth. The boilerplate 401k strategy is that you take all the risk in your 20's/30's and then slowly dial it back as you approach retirement

Fidelity actually names their funds by when you plan on retiring. For example, mine is called the 2050 fund. I put my money in that and they balance the risk/reward.

Anyway, picking funds aside, the only real thing you have to watch for is fees. Sometimes 401k fees can be so high that they'll just eat away your gains. Keep a close eye on it in the first three years. Track it's progress. Make sure it's not just a damn scheme.

Honestly your program doesn't sound all that amazing.. if I were you I would consider looking into more creative/independent strategies like IRA's or something

because that match is so terrible it might as well not exist

Bowen

Six years is pretty common, mine's actually 7. Some companies use waterfall/cliff vesting, some use graduated.

So you'd be 0,0,20,40,60,80,100% by year or something like that.

Some do 0,0,0,100%

Some do others!

Jasconius

my company matches 5% with no dollar cap and it vests immediately *flex*

WonderMink

My vesting schedule is 0 year 1 then 20% a year. Also, I'm not sure if it is matching 20% up to 2k of matching amount or they only match on 2k. The first is bad, but certainly better than the second.

I'll have to ask HR.

No I'm not a government employee, I work as an office slave at a real estate office. I guess im a secretary? Office assistant is my official title. More like a secretary for 45 realtors. So, since the future career path probably involves becoming a realtor, any IRA advice is welcomed too.