advise for new 401k

[Cactus Terry]

im 25 and know nothing about investing. anyways i decided i should start in my 401k program at work after putting it off for a few years. i thought some of you might have some good recommendations for me on which funds to pick. i only have about $200 a month going into this right now and i think i get 20% matched every quarter or something. i have no plans for withdrawing from the fund and am not super adverse to risk. right now i have money going equally into these 4 funds which i picked fairly randomly:

American Funds EuroPacific Gr R4
Royce Low-Priced Stock Inv
SSgA S&P 500 Index
Vanguard Target Retirement 2025

and i have these others to pick from:
Delaware Trend A
Dodge & Cox Income
American Funds Grth Fund of Amer R4
Hotchkis and Wiley Mid-Cap Value I
Loomis Sayles Bond Instl
Morley Stable Value Fund MF4020
Oppenheimer Capital Appreciation N
Van Kampen Growth and Income A
Vanguard Target Retirement 2015
Vanguard Target Retirement 2035
Vanguard Target Retirement 2045
Vanguard Target Retirement Income

they really mean nothing to me. i think ive made $3 in profit so far this year with the ones ive picked and i dont know if thats good or not but maybe there is a really good one that i am missing out on. or maybe i should spread it out more or put it all in one. any advise? thanks!

[mwgr5]

Since you are young and "have no plans for withdrawing" money, the 401K should be composed mostly of stock funds. Historically, stock funds have provided greater return but also have greater risk. Since you are young, the risk is reduced as time smoothens market fluctuations, providing stock fund holders with the greater return for assuming the greater risk.

I am not familiar with all of these funds but there are multiple options for how you invest in this 401K.

A well-planned portfolio utilizes asset allocation. You can find out more information by following that link or searching for asset allocation. Since you are young you would want a more aggressive asset allocation featuring more stock funds and less bond funds.

An aggressive asset allocation can be accomplished by holding different funds in your 401K that specialize in different areas, such as small cap stocks. If you would like to go this route I would first invest in the SSgA S&P 500 Index. This is a large cap fund with low expenses that acts as a core holding or anchor for your portfolio. Later you could add on other funds in an appropriate asset allocation to complete the portfolio. This would maximize your returns, as a high percentage of portfolio performance is directly correlated to asset allocation.

The other, much easier option is to invest in a target retirement fund. This option is good because it involves no work or research. Also, it provides an appropriate asset allocation. As you age, the fund becomes more conservative by holding a higher percentage of bond funds and a lower percentage of stock funds. This is automatically done so it requires no work on your part. This option may also be more favorable to you because of your limited investment. Because you are investing $2,400 a year, constructing a portfolio of mutual funds in the 401K could be difficult. The Vanguard Target Retirement 2045 is the target retirement fund you would want to invest in. Vanguard is a solid company and you can find more information about this fund at vanguard.com.

Taking advantage of a match in a 401K and investing at a young age are two of the best investing moves you can make to secure your future. Keep up the good work!

[MatthewRyan]

You are very, very lucky to have the VG TR funds in your 401k plan.

Usually the first thing a person needs to do is find out the expense ratios on all of their funds, and then throw up a little in their mouth. Because usually you get raped in a 401k and pay 1.5% ER's.

However, I can tell you right now that the VG TR 2045's ER is .21%.

Remember that 90% of your investment return will come from your asset allocation, or the specific mix of the stocks/bonds in your protfolio.

Having the vangaurd TR 2045 fund will make sure that you have an appropriate asset allocation now, and for the rest of your investment life because the fund automatically becomes more conservative as your time horizon, risk tolerance, and need to take on risk decreases.


Simply stick your 401k $ into the VG TR 2045 and forget it. I want to add that if you have any extra money that youd like to invest outside the 401k, make sure to open a Roth IRA @ Vangaurd.

[dc_publius]

Instead of trying to tweak out an extra percent or two out of your portfolio, you should focus on maxing out your contributions first.

Your employer matches 20%. That means you're instantly getting 20% return on your money, RISK FREE. That is huge. Not to mention that this is pretax.

My advice: you should contribute the max that your company matches, and only then worry about specific portfolio decisions.

[Sniper]

[ QUOTE ]
im 25.... Vanguard Target Retirement 2025

[/ QUOTE ]

Why did you choose the TR 2025, instead of the TR 2045?

[Cactus Terry]

i guess i was being optimistic by picking the 2025 huh? i guess ill switch to 2045 and maybe move it up to 50%. and i do put in the max percent that my company will match and someone was telling me that they raise what they put in 1% each year (above what they match) and dont even notice the difference so i think ill try that although i dont know if ill still be working at the same place for that many years (but i said that 5 years ago and wish i started contributing then). so im thinking ill switch the vangard to 50% and 2045 and then do 25% foreign one and 25% s&p one. how does that sound?

thanks for the advise guys!

[MatthewRyan]

You really need to eduacate yourself on this topic!

From your post it looks like you have not even taken 30 seconds to actually look what the TR 2045 fund is. I mean, your proposing that it be 50% of your retirement money and I can see that you have NO clue what it is.

At least look on Vanguard's website. Look what the TR funds are comprised of.

FYI - the TR 2045 fund already has international funds and it has a total stock market fund (even better than the S&P).

Im going to say this again because I cannot stress this enough: You must eduacate yourself on this topic.

Otherwise, you are setting yourself up for failure down the road.

-Matt

[Cactus Terry]

it is sad but you are completely right. i havent put any real thought into it. that is why i appreciate your guyses input. i went to the website but it really is all greek to me. i really dont understand what Unrealized Appreciation/Depreciation as a % of NAV is and probably never will. i know it is important but these kind of finance things are very foreign to me. i grew up in a pay check to pay check house and basically have one of my own. saving for retirement isnt something that has ever been on my mind (and that probably makes smart people like you guys sick) but someone i work with spent a lot of time trying to talk me into it and i did it as a whim. maybe it is a mistake to get involved in at all being so ignorant of what i am doing but i dont notice the money being taken out and it isnt taxed and if it goes up a few bucks a month like it has so far that is fine with me...so maybe i should do what you say and just put it all in 2045? i dunno it just seems more 'fun' spreading it around. i was actually gunna put like 4 or 5% in all of the different funds when i first started but someone talked me out of that and said i should just pick 4. they also told me that the foreign one does really well...but if you are saying that the vangard one incorporates all of that ill take your word for it. if anyone could recommend one or two of the others that would compliment the vangard 2045 that would be cool.

thanks again!

[ColdCaller]

You should NOT listen to anyone who is going to simply tell you how to invest your money.

You must learn by reading books and doing the math yourself.

This, like many things in life, requires dedication and your own understanding. Whether or not this is "Greek" to you shouldn't matter, as this is extremely important. The power of compound interest may not excite you, but it will make you rich and able to retire earlier.

I suggest you get to reading.